Powell: '50 Basis Points on the Table at May Meeting'

During a seminar sponsored by the International Monetary Fund (IMF) on April 21, 2022, Federal Reserve Board (FRB) Chair Jerome Powell stated that an interest rate hike of "50 basis points will be on the table for the May meeting" of the Federal Open Market Committee (FOMC). He noted that one or more hikes of 50 basis points (bp) are supported by several FOMC members, but he would not disclose his own opinion.

Powell asserted that "getting inflation back to the 2% goal" is a key policy imperative right now. He added that it is "absolutely essential to get price stability" in order to assure labor market stability and overall economic stability.

Economic Pressures

Powell observed that "in terms of the U.S. economy, we are a bit more remote" from the negative impacts from Russia's invasion of Ukraine, as opposed to European nations. Nonetheless, despite a strong labor market and overall economy in the U.S., Powell noted that the conflict is producing "upward pressure on prices and downward pressure on output." He added, "Our goal is to use our tools to get demand and supply back in sync, without a recession."

'Inflation Is Really a Global Problem'

In response to a question from the panel's moderator about whether inflation has peaked in the U.S., Powell responded, "Inflation is really a global problem," while adding that the U.S. has "higher core inflation than Europe." He continued, "We had expected that inflation would peak around this time ... but we have been disappointed in the past."

As a result, Powell indicated that "we will be getting expeditiously to [interest rate] levels that are more neutral." While he did not elaborate, the context suggests that he meant "neutral" in terms of being neither stimulative nor depressive vis-à-vis economic activity.

The Fed's Tools

In response to a question from the moderator about the impact of Russia's war on Ukraine on supplies of key raw materials, or of COVID-related lockdowns in China on supplies of manufactured goods, Powell stated that "our tools work on demand, not supply." In this vein, he added that there is "substantially more demand than supply in the labor market."

The moderator followed up by asking whether the stock market needs to be lower in order to reduce inflation. Powell did not answer this directly, but he observed that "financial conditions affect the real economy ... we have seen some tightening from our rate increases."

The Future of Globalization

The moderator asked the panelists whether, as a result of the disruptions created by Russia's war on Ukraine, globalization is now in reverse. Powell said that they "may lead to a more fragmented economic situation" while indicating that these are largely political issues.

He observed that "globalization had benefits to it, and costs to it." In particular, he noted that "the supply chains we had were very efficient, but very fragile."

'We Are Not Going Back to the Old Economy'

The moderator closed by asking the panelists, "What are we not paying enough attention to?" Powell stated that the U.S. had a "remarkable response" to the pandemic, but "COVID is still with us." He continued, "We are not going back to the old economy," placing emphasis on the sharp retreat of workers from the workforce, with an accompanying surge in wages due to the resulting imbalance between labor demand and labor supply.

He noted that the U.S. has a "very good labor market for workers" and that "there's a lot to like about the U.S. labor market." He offered the caveat that the current pace of wage increases is not sustainable in the longer term.