Federal Reserve Chairman Jerome Powell admitted that a half-point increase in the Federal Funds Rate is on the table.
“At the March meeting, many of the members (of the Fed’s Federal Open Market Committee) said one or more 50 basis point hikes are coming. If we review the last cycle of hikes, from about three years ago, the increases were a quarter of a point, but inflation was close to 3 percent. Now inflation is much higher and from my perspective, I think we need to move faster. And a move or more than 50 basis points is on the table,” he explained.
March inflation in the United States registered a variation of 8.5%, which is the highest reached in four decades.
The last time the Fed raised interest rates by half a percentage point was in May 2000, at the height of the dot-com bubble crisis. And the closest precedent in which the Committee raised rates half a point or more for several times in the year, was in 1994.
On March 15, the Fed’s Federal Open Market Committee (FOMC) instructed the first increase in the rate since 2018, in a movement of a quarter of a point, which left the rate range of reference between 0.25 and 0.50 percent.
As the central banker explained, in a session during the Spring Meetings of the International Monetary Fund (IMF) and the World Bank, the decisions of the Committee are made at each meeting considering the most current economic information.
We are really committed to using all our tools to recover an inflation of 2%, as is our objective”.
Jerome Powell, Chairman of the Fed.
In the ECB in an accommodative position
The president of the European Central Bank (ECB), Christine Lagarde, the managing director of the IMF, Kristalina Georgieva and the Indonesian economy minister, Sri Mulyani Indrawati, participated in the same panel, in her capacity as president of the G-20.
Lagarde said that they will remain in an accommodative position in the face of the high uncertainty that remains due to Russia’s war on Ukraine.
“Our monetary policy will depend on the data received and the evolution of the outlook. In the current conditions of high uncertainty, we will keep the door open for gradual movements in decisions that guarantee us the flexibility to respond appropriately to circumstances as they arise.”
As Powell did on his occasion, the central banker said that the ECB will take all the tools at its disposal to fulfill its price stability mandate in an environment that guarantees financial stability.
“The unjust war on Ukraine is generating regional risks (in Europe) that may affect the financial markets of the euro zone. Hence the importance of making decisions step by step, gradually”, she stated.
alert emerging
Indonesian Finance Minister Sri Mulyani Indrawati, in her capacity as president of the G-20, commented that the emerging economies are clear that the decisions that the United States and China will make will be decisive for global financial conditions.
As long as the decisions of the Fed and China are well communicated, the central banks of the emerging economies will have enough time to try to order the impact of the adjustments, he said.
Many emerging central banks have started to guide their positions in advance, have external accounts in manageable positions and are less exposed to Fed decisions, he said.
IMF asks to respond appropriately
On her occasion in the discussion, the managing director of the IMF stressed that despite the situation of uncertainty due to the war, there are few economies that are at risk of falling into a new recession. Russia and Ukraine are clearly in that territory.
Emerging markets will still remain 6% below pre-pandemic economic growth levels due to the impact that the war situation is having on inflation from now on, he asserted.
Uncertainty over the war has erased two years of progress made by global economies after the pandemic, and my biggest concern, Georgieva acknowledged, is that prospects for recovery may be worsened by food inflation and authorities have less fiscal space to support them.