Reference to the CFA’s Advocacy Update from May 19, 2022

U.S. Federal Reserve Chair Jerome Powell, in his most hawkish remarks to date, said the U.S. central bank will keep raising interest rates until there is “clear and convincing” evidence that inflation is in retreat.

“What we need to see is inflation coming down in a clear and convincing way, and we’re going to keep pushing until we see that,” Powell said Tuesday during a Wall Street Journal live event. “If that involves moving past broadly understood levels of ‘neutral,’ we won’t hesitate at all to do that.”

The Fed chair repeatedly stressed the need to curb the hottest inflation in decades during the roughly 35-minute interview, calling price stability “the bedrock of the economy” and acknowledging that some pain in achieving this — including a slight rise in the unemployment rate — was a cost worth paying in order to achieve it.

Powell and his colleagues on the central bank’s Federal Open Market Committee voted to raise their benchmark rate by a half-percentage point at a policy meeting earlier this month, and the chair at the time suggested to reporters that hikes of similar magnitudes would be on the table at their next two meetings in June and July. He repeated that guidance Tuesday, while adding that near-term inflation developments would be a critical determinant of the size of coming moves.

If the Fed doesn’t see clear and convincing evidence of abating inflationary pressures, “then we’ll have to consider moving more aggressively,” Powell said. “If we do see that, then we can consider moving to a slower pace.” The target range for the benchmark federal funds rate currently stand at 0.75 per cent to one per cent. The FOMC next meets June 14 to 15.

US consumer prices rose 8.3 per cent in the 12 months through April, according to Labor Department figures published May 11. That was slightly lower than the 8.5 per cent increase in the 12 months through March, which marked the highest inflation rate in 40 years.

While inflation is set to recede further, supply-chain disruptions associated with the Russian invasion of Ukraine and Covid lockdowns in China will probably keep upward pressure on prices in the coming months. Powell made it clear that the Fed would not be over-analyzing the incoming data as it formulates near-term policy.