Economy

Fed chair says another 'unusually large' rate hike possible at next meeting

Federal Open Market Committee would not hesitate to make larger move, says Jerome Powell

Ovunc Kutlu  | 27.07.2022 - Update : 28.07.2022
Fed chair says another 'unusually large' rate hike possible at next meeting

ANKARA

US Federal Reserve Chair Jerome Powell said Wednesday that another "unusually large" interest rate increase is possible at the central bank's next meeting in September.

"While another unusually large increase could be appropriate at our next meeting, that is a decision on the data we get between now and then," Powell said at a news conference after the Federal Open Market Committee (FOMC) raised the target range for the federal funds rate to the 2.25% - 2.5% range with a hike of 75 basis points.

That was after the Fed increased its benchmark interest rate by another 75 basis points June 15 -- the largest hike in 28 years.

Powell called the current rate increase the "right magnitude" based on macroeconomic data but said the FOMC would not hesitate to make a larger rate hike move.

But he indicated that increases could slow at some point.

"It will likely be appropriate to slow the pace of increases, while we assess how our cumulative policy adjustments are affecting the economy and inflation," he said.

Powell noted that the PCE (personal consumption expenditures) price index, the Fed's preferred inflation indicator, annually rose 6.3% in May, saying "supply constraints have been larger and longer than anticipated and price pressures are evident across a broad range of goods services."

"My colleagues and I are strongly committed to bring inflation back down and we are moving expeditiously to do so," he said.

He also said the continued strength of the labor market suggests that underlying aggregate demand in the American economy remains "solid."

While the Fed's aggressive monetary tightening has created fears of a recession in the world's largest economy, Powell tried to calm those worries.

"I do not think the US is currently in a recession. The reason is that there are too many areas of the economy that are performing too well," he said.

"There is a very strong labor market. It does not make sense that the economy would be in a recession with this kind of thing happening," he added.

The US economy contracted 1.6% in the first quarter, while the first reading of the second quarter gross domestic product (GDP) will be released Thursday.

"The slowdown in the second quarter is notable, we are going to be watching that carefully," said Powell.

But the Atlanta Fed's GDP model on July 1 showed that the economy is already in recession.

"The GDPNow model estimate for real GDP growth in the second quarter of 2022 is -1.2% on July 27," according to the Atlanta Fed.

Powell said the Fed still aims to achieve a soft-landing -- a process where a central bank raises rates against high inflation and causes an economic slowdown but avoids a recession.

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