High Inflation: Fed Chairman Powell Considers 0.5 Percentage Point Interest Rate Hike: US Labor Market Overheats | news

Central Bank Governor Jerome Powell said Thursday at an International Monetary Fund (IMF) event in Washington. With inflation and interest rates rising 0.25 percentage point in March, “it’s appropriate to move a little faster,” Powell said. As a result, a 50 basis point rate hike will be discussed at the Fed Council meeting on May 4, Powell said.

The goal is to use the central bank’s tools in such a way that supply and demand adjust again and inflation goes down. The economy should cool down in a way that doesn’t amount to a “recession,” Powell said. “That’s our goal,” he said. The balancing act will not be easy. “It’s going to be a big challenge. We’re going to do everything we can to make this happen,” Powell promised. “And restoring price stability is absolutely critical,” Powell said. This is a prerequisite for a strong job market and stability in financial markets, he said.

The key interest rate for the world’s largest economy has been in the range of 0.25 to 0.5 percent since March. For this year alone, increases of more than two percentage points are expected in the markets. The pressure on the Fed is great because the rate of inflation is at its highest level in decades, which is reducing the purchasing power of consumers. In March, consumer prices increased 8.5 percent compared to the same month last year. The Fed is aiming for an inflation rate of two percent in the medium term.

Fed Chairman Powell talks about overheating in the US labor market.

According to the head of the Central Bank, Jerome Powell, the US labor market is in an overheating phase. There is currently a “very, very good labor market for employees” with good wages, but overall the “overheated” situation is not “sustainable,” Powell said Thursday at an International Monetary Fund (IMF) event in Washington. “It’s too hot,” he said. Therefore, central bank intervention is required. “It’s our job to get to a point where supply and demand are closer together,” Powell said.

The Fed is committed to the goals of price stability and full employment. The jobless rate had recently fallen to a rock-bottom 3.6 percent, virtually the pre-pandemic level. Many companies in the US are already complaining about worker shortages and wages are rising. The Fed wants to raise its key interest rate relatively quickly and sustainably this year to cool down the economy a bit and thus reduce the rate of inflation.

/jbz/DP/he

WASHINGTON (dpa-AFX)

Image Credits: SAUL LOEB / Contributor/Getty Images

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