Jerome Powell, Chair of the Federal Reserve, stated Wednesday that the central bank may raise interest rates in the same manner as in June at its next policy meeting.
Powell spoke at a news conference that followed the announcement of the central bank’s policy change. He stated, “From today’s perspective, either a fifty basis point or 75 basis points increase seems most likely at next meeting.” “We expect that continued rate increases will be necessary.”
Powell explained that “the pace of such changes will depend on incoming information and the evolving outlook on economic activity.” The 75 basis points increase today is unusually high and I don’t anticipate that such big moves will be frequent.
Wednesday: The central bank raised benchmark interest rates by three-quarters of a percentage pointIt is now at 1.5%-1.755%. This represents the largest increase since 1994.
Markets were surprised by Powell’s willingness to open the doors to another large increase. Many investors called for the Fed chief’s seriousness about battling rising prices. Following Powell’s remarks, equity averages rose to sessions highs.
Bill Ackman of Pershing Square stated that earlier in the week, inflation had “gotten out of control” at the Fed. The Fed has therefore been losing confidence in equity and credit markets.
Ackman urged the central bank to be more aggressive to restore confidence in markets. He suggested that a series 1 percent point increases would help to reduce inflation.
Wednesday’s Fed action comes along with inflation running at its fastest pace in more than 40 years. Federal Open Market Committee declared in a statement it was “strongly determined” to return inflation to its goal of 2%.
The Fed’s benchmark interest rate for the year will be 3.4% according to the dot plot of the individual member’s expectations. This is 1.5 percentage points more than the March estimate. In 2023, the committee expects that the rate will rise to 3.8%. This is an entire percentage point more than was previously expected.
Powell stated, “We will nevertheless make our decisions meeting-by-meeting and we’ll continue communicating our thoughts as clearly as possible.”
