Lest there be any doubt, Federal Reserve Chair Jerome Powell slammed it Thursday: The Federal Reserve is likely to hike interest rates by half a percentage point at its policy meeting in two weeks, the first such move since March 22 years.
Driving the news: In a panel at the IMF on Thursday, Powell said it was appropriate to “move a little faster” on rate hikes and that financial markets are “generally acting appropriately” as they have adjusted to those expectations.
- The Central Bank is now focusing on actual inflation rate cuts rather than mere forecasts, he said. Asked if March could turn out to be the peak of inflation, he said: “It could be that the actual peak was in March, but we don’t know that, so we won’t count on it.”
- In a political session ending May 4, the Fed is likely to both hike rates by half a percent and begin “quantitative tightening,” shrinking its balance sheet by as much as $95 billion a month.
Powell’s comments essentially confirming a message that has come from numerous Fed officials over the past few days, showing that even normally dovish central bank leaders believe the Fed must act quickly to turn monetary policy away from its current stimulus stance.
- “I see a brisk move to neutrality by the end of the year as a sensible path,” San Francisco Fed President Mary Daly said in a speech Wednesday. “The purposeful transition to a more neutral stance that does not stimulate the economy is a top priority.”
Game Status: The financial markets have already priced in this more aggressive path. One sign: The average interest rate on a 30-year fixed-rate mortgage rose to 5.11% this week, Freddie Mac said, from 3.76% in early March.
The bottom line: Powell could have chosen to push back those expectations if he felt markets were ahead of things. The lack of pushback in a situation like this is tantamount to confirmation that an aggressive streak of rate hikes is the plan.
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