US Fed may hike rates sharply in coming months

JACKSON HOLE: US Federal Reserve chair Jerome

Powell

delivered a stark message on Friday: The

Fed

will likely impose more large interest rate hikes in coming months and is resolutely focused on taming the highest inflation in four decades.

Powell also warned more explicitly than he has in the past that the Fed’s continued tightening of credit will cause pain for many households and businesses as its higher rates further slow the economy and potentially lead to job losses.

“These are the unfortunate costs of reducing inflation,” he said in a high-profile speech at the Fed’s annual economic symposium in

Jackson Hole

, Wyoming. “But a failure to restore price stability would mean far greater pain.” Investors had been hoping for a signal that the Fed might soon moderate its rate increases later this year if inflation were to show further signs of easing. But Powell indicated that that time may not be near. In early trades, the Dow Jones was down 1.7%, the S&P 500 down 2.1%, and the Nasdaq was down 2.6%.

After hiking its key short term rate by 75bps (100bps = 1 percentage point) at each of its past two meetings — part of the Fed’s fastest series of rate increases since the early 1980s — Powell said the Fed might ease up on that pace “at some point” — suggesting that any such slowing isn’t near.

Powell said the size of the Fed’s rate increase at its next meeting in late September — whether 50 or 75 bps — will depend on inflation and jobs data. An increase of either size, though, would exceed the Fed’s traditional 25bps hike, a reflection of how severe inflation has become.

Powell’s speech is the marquee event of the Fed’s annual economic symposium at Jackson Hole, the first time the conference of central bankers is being held in person since 2019, after it went virtual for two years during the pandemic.

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