Powell Reiterates Fed’s plan to get interest rates “expeditiously” to neutral

Fed Chairman Jerome Powell on Thursday said the central bank is committed to raising rates “expeditiously” to bring down inflation. When asked about the topic of inflation at an IMF panel, Powell noted that the Fed is no longer counting on inflation coming back down, as these expectations of supply-side easing have been let down in the past.

Powell noted that, of course, it would be great if supply-side pressures eased and inflation came back down, but emphasised the Fed’s focus on getting interest rates back to neutral “expeditiously” in order to be prepared either way.

The immediate reaction in the US dollar has been modest weakness, with the DXY pulling back under 100.50 in recent trade from earlier session highs in the 100.60 area. Powell affirmed the central bank’s determination to bring down inflation and said Thursday that aggressive rate hikes are possible as soon as next month.

Speaking at an IMF panel alongside ECB President Christine Lagarde and other central bank leaders, Fed Chair Jerome Powell was questioned on the appropriateness of the money market’s pricing of three 50 bps rate hikes over the next three Fed meetings. Whilst Powell was careful to clarify that he will not endorse any specific market pricing, he said that he did think that markets were priced appropriately given that, with inflation elevated, it makes sense for the Fed to move faster in tightening policy compared to previous hiking cycles.

“50 bps rate hikes are on the table”, Powell said, who emphasized the Fed’s commitment to achieving its 2.0% inflation target. Powell also noted that many at the Fed thought 50 bps rate hikes would be appropriate going forward, echoing the remarks of many of his FOMC colleagues in recent days. Powell also reiterated his usual observations that the US economy is very strong and that the labour market is very tight.

Key Quotes:

“We have a job to do regarding demand.”

There are more job openings than unemployed people.

“We’ve got a demand/supply imbalance in the US labor market and elsewhere”.

“We have seen some tightening in financial conditions”.