[Summary] Powell: "There Will Be Pain in Controlling Inflation, But Rate Hikes Will Continue"... Bullard Also Signals a 'Big Step' Increase

[Image source=Reuters Yonhap News]

[Asia Economy New York=Special Correspondent Joselgina] "We will continue until we see inflation definitely coming down." Jerome Powell, Chairman of the U.S. Federal Reserve (Fed), confirmed that he will continue raising the benchmark interest rate to respond to inflation soaring to the highest level in over 40 years.

On the 17th (local time), at the ‘Future of Everything’ event hosted by The Wall Street Journal (WSJ), Chairman Powell stated, "There may be some pain involved until price stability is achieved," while affirming this stance.

He said, "We have both the means and the determination to lower inflation," emphasizing that the central bank, the Fed, is focused on the task of price stability. He also stressed, "If we need to go beyond the widely recognized neutral rate level, we will not hesitate to do so." This means the policy rate could be raised above the neutral rate, estimated at around 2.5%, if necessary.

This remark drew even more attention as it came shortly after former Fed Chairman Ben Bernanke unusually criticized the Fed’s inflation response while warning of a stagflation risk. On the same day, Powell mentioned a "soft or softish landing," suggesting that there could be an economic downturn without causing a major shock to the market. In contrast, at the same event, Charlie Scharf, CEO of Wells Fargo, stated, "There is no doubt that the U.S. economy is declining," and diagnosed that "it will be difficult to avoid a recession."

Along with this, Chairman Powell mentioned that the Fed could take a so-called ‘big step’ by raising interest rates by 0.5 percentage points again at the June Federal Open Market Committee (FOMC) meeting, following the increase in May. James Bullard, President of the Federal Reserve Bank of St. Louis and a prominent hawk within the Fed, also signaled a big step. According to the Chicago Mercantile Exchange (CME) FedWatch, the federal funds (FF) futures market reflected more than an 80% chance of a big step in June.

On the day, the New York stock market narrowed its gains immediately after Powell’s hawkish remarks but then rebounded to close broadly higher. This was due to strong U.S. economic indicators, including retail sales.

The U.S. Department of Commerce released April retail sales data showing a 0.9% increase from the previous month, marking the fourth consecutive month of growth. April industrial production also rose 1.1% from the previous month, exceeding the forecast of 0.5%. James Knightley, economist at ING, said, "This shows that demand within the U.S. is very robust," and evaluated that "it provides grounds for continuing rate hikes without major concerns."