Federal Reserve’s Chair Jerome Powell Puts 50 Basis Point Hike on the Table

The Federal Reserve Chair Jerome Powell said on Thursday U.S. benchmark interest rate by 50 basis points “will be on the table” for the next Federal Open Market Committee (FOMC) meeting in May.

During an IMF-hosted panel on he noted, “I would say that 50 basis points will be on the table for the May meeting,”.

“We really are committed to using our tools to get 2% inflation back,” he said, referring to the Fed’s target for annual price increases.

The development lead interest-rate futures to fully price in half-point hike when policy makers are set to meet on May 3-4 and another half-point hike is fully priced in for June.

Meanwhile, investors are also pricing third half-point increase for July. St. Louis President James Bullard earlier said he is open on debate on more aggressive hike by 75 basis points if needed.

Powell remarked “there’s something in the idea of front-end loading” moves if appropriate, “so that points in the direction of 50 basis points being on the table.”

However, he declined to comment on market pricing but noted that in Fed’s March meeting many officials backed one or more half-point rate increase to tame down inflation.

Inflation in the U.S. – the CPI index rose 8.5% in March from a year earlier, the most since 1981. The situation grapples with pressure on supply chain and commodities amid war in Ukraine and renewed lockdowns in China as it tackles with COVID-10 infections.

In May’s meeting Fed is also expected to roll out shrinking their balance sheet capped at $95 million a month combined with Treasuries and mortgage-backed securities..

The labor market in the U.S. is also strong with  employers adding nearly 1.7 million jobs in the first quarter, pushing the unemployment rate down to 3.6% last month.

Powell acknowledged the tightness of the job market but said it was “too hot” and the Fed is going to cool it down.

“It is a very, very good labor market for workers,” he said. “It is our job to get it into a better place where supply and demand are closer together.”

“The Fed’s got a lot of work to do here,” said Mark Zandi, chief economist at Moody’s Analytics, in a video talk hosted by The Volcker Alliance Thursday.

“I am assuming they are going to be flexible and adjust when they need to and they are going to be able to tighten enough to slow growth” without undermining “the economic recovery.”