A fresh wave of COVID in China and the ongoing war in Ukraine could further exacerbate inflationary pressures, says Chairman of the U.S. Federal Reserve.
A 50-bps increase remains on the table
Jerome Powell now sees the need to be more aggressive in taming inflation this year that hit a record 7.9% in February. At the NABE annual conference, he said:
We’ll take necessary steps to ensure a return to price stability. If we conclude it’s appropriate to raise rates by more than 25 bps at a meeting or meetings, we’ll do so. And if we need to tighten beyond common measures of neutral and into a more restrictive stance, we’ll do that as well.
Powell’s remarks come a week after the FOMC raised rates by 25 basis points for the first time since the start of the Coronavirus pandemic. At the time, the Chairman of the U.S. Fed had signalled six hikes, 25 bps each, at the remaining six meetings this year.
Fed’s longer-term outlook on inflation
The central bank has already indicated that it could start reducing its $9.0 trillion balance sheet by as soon as May. Powell sees inflation to return to 2.0% over the next three years.
It’s likely that hoped-for supply-side healing will come over time as the world settles into some new normal, but timing and scope of that are highly uncertain. Meanwhile, as we set policy, we’ll look to actual progress on these issues and not assuming significant near-term supply-side relief.
Also on Monday, veteran investor Mark Mobius said equities continue to be the best hedge against inflation.
