Fed’s Powell Puts Half-Point Rate Hike on the Table for May

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Federal Reserve Chairman Jerome Powell confirmed on Thursday afternoon that the U.S. central bank will be considering a more aggressive path of monetary policy tightening when officials meet for their next policy meeting in less than two weeks.

Speaking as part of a panel of top economic policy officials for a debate on the global economy, Powell said a half-point interest-rate increase “will be on the table” during the May policy meeting and noted that many central bank officials already felt such a move was appropriate during the March meeting.

Compared with the central bank’s 2004-2006 tightening cycle, inflation now is higher and yet monetary policy remains more accommodative, Powell said.

“So it is appropriate, in my view, to be moving a little more quickly,” he continued, though he declined to endorse a specific path forward and said any decisions will be made at the meeting itself. “I also think there’s something in the idea of front-end loading whatever accommodation one thinks is appropriate. So that does — that points in the direction of 50 basis points being on the table.”

The comments come as central bank officials debate how quickly to raise interest rates and shrink the bank’s mammoth balance sheet ahead of their May 3-4 policy meeting. Powell’s public appearance—where he spoke alongside European Central Bank President Christine Lagarde and IMF Managing Director Kristalina Georgieva, among others—is his last before Fed officials enter a quiet period leading up to that meeting. The panel is being streamed here.

Powell also gave brief welcoming remarks at a Volcker Alliance and Penn Institute for Urban Research briefing Thursday morning. He offered no comment on policy or the economy.

The highly consequential May meeting will come as some central bank officials have been signaling for weeks that they support raising interest rates by a half-point, a move that would come close on the heels of the Fed’s quarter-point interest rate hike in March. 

At the time, Powell said the central bank would be looking to move more rapidly to tighten monetary policy as conditions required, but noted the Fed was navigating considerable uncertainty caused by the Russia-Ukraine war.   

Since then, however, minutes released from the March meeting show several Fed officials are in support of a half-point interest rate hike as a way to try to tamp down inflation that is running at the fastest pace in more than 40 years. Lael Brainard, the Fed governor awaiting Senate confirmation as vice chair and is considered among the bank’s more dovish members, recently endorsed the need for the Fed to move rapidly to shrink its balance sheet, a process that is widely expected to begin with the May meeting.

Asked specifically on Thursday whether markets are correct to be braced for three half-point interest-rate increases, Powell demurred. “I think markets are processing what we’re saying,” he said. “They’re reacting appropriately, generally—but I wouldn’t want to bless any particular market pricing.”

Write to Megan Cassella at [email protected]