WASHINGTON (AP) – Chair Jerome Powell said Monday that the Federal Reserve would raise its benchmark short-term interest rate faster than expected, and high enough to restrain growth and hiring, if it decides this would be necessary to slow rampaging inflation.
Powell’s message was more hawkish than his comments were after last week’s Fed meeting, when officials raised their key rate a quarter-point from near zero to a range of 0.25% to 0.5%. (“Hawks” typically support higher rates to stave off inflation, while “doves” generally prefer lower rates to bolster hiring).
His remarks, in a speech to the National Association for Business Economics, caused a sharp drop in the stock market, with its implication that potentially much higher rates could be on the way for mortgages, auto loans, credit cards and other consumer and business borrowing. U.S. stocks later recovered, with the S&P 500 index ending the day down less that 0.1%.
Powell said that if necessary, the central bank would be open to raising rates by a comparatively aggressive half-point at multiple Fed meetings. The Fed hasn’t raised its benchmark rate by a half-point since May 2000.
He added, too, that the policymakers could go so far as to send rates into “restrictive” territory that would slow economic growth and possibly raise the unemployment rate, if needed to tame high inflation.