During a panel discussion on Thursday within the framework of the annual spring meeting of the International Monetary Fund, Jerome Powell nailed down the Federal Reserve's hawkish stance on fast and sharp rate hikes. He added that it was extremely important for the US Fed to employ all of its tools to tame high inflation and ensure stability of consumer prices.
The economy does not work without financial stability, the policymaker noted. According to Jerome Powell, it would be appropriate to raise the federal funds rate by 50 basis points at a time at the nearest policy meeting in May. The policymaker dropped a hint that the central bank could increase interest rates by half a percentage point at least at each of the two nearest meetings. He said that in the face of soaring inflation, the central bank is ready to take more drastic policy moves compared to the previous cycle of monetary tightening.
Inflation in the US is way higher nowadays and the refinancing rate is more flexible. So, it makes sense to push harder with monetary tightening, Mr. Powell explained.
The rhetoric of the Federal Reserve sharply contrasts with the agenda of the ECB. At the same event on Thursday, ECB President Christine Lagarde confirmed the ECB patient approach despite the fact that the EU economy is facing the risks of a slowdown and rising inflationary pressure. Besides, Christine Lagarde noted that even though inflation in Europe is much stronger than the ECB target level, the ongoing monetary policy is not to blame. Soaring inflation was sparked off by sky-high energy prices amid the simmering hostilities in Ukraine.
The ECB President added that the inflation threat is still caused by tight energy supply. Christine Lagarde said that the regulator would proceed with its agenda for scaling back monthly asset purchases. The stimulus program should be complete roughly in Q3 2022. Once it is over, the central bank will move on to the next stage and discuss when it will be reasonable to increase interest rates.
