Powell says Fed will ‘continue pushing’ until inflation sets in

(Bloomberg) – Federal Reserve Chair Jerome Powell says no one should doubt the US Federal Reserve’s commitment to controlling the highest inflation rate in decades, including pushing rates to the limit if necessary.

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“What we need to see is that inflation is coming down in a clear and credible way and we will continue to push until we see it,” he said Tuesday during a live event in the Wall Street Journal. “We would not hesitate to do so if it involves taking the levels of understanding broadly into the past.”

US central bankers raised interest rates by half a point at their meeting earlier this month, and Powell said two similar measures were on the table in June and July. Their benchmark loan rate target currently stands at 0.75% to 1%. He reiterated that guideline on Tuesday, noting that “if the economy works as we expect, it will be something that will be on the table.”

In the 12 months to April, U.S. consumer prices rose 8.3%, according to Labor Department figures released May 11. Which is slightly lower than the 8.5% increase in the 12 months to March, marking the highest inflation rate in 40 years.

Domestic demand has remained strong although some Fed officials have said they want to raise rates neutrally by the end of the year as the financial situation tightens, which they see falling to around 2.5%.

“It’s a strong economy and we think it’s in a good position to tolerate a less consistent monetary policy, a tighter monetary policy,” Powell said. “There may be some pain involved in restoring price stability – but we think we can maintain a strong labor market.”

Fed officials say they can reduce job demand without raising unemployment, an achievement not seen in the last two recessions. Unemployment is down to 3.6%, and wages and benefits are rising.

Powell said the labor market would still be strong even if the unemployed had “a few ticks” more than that.

Financial status

The Standard & Poor’s 500 stock index fell about 15% from its January high, while the yield on official 10-year notes stood at about 2.96%, up from 1.5% at the beginning of the year.

Long-term yield growth is pushing up borrowing costs for housing – one of the most interest-sensitive sectors of the economy, which wants to look cool to help control Fed price pressures. According to the national average tracked by Bankrate.com, the 30-year fixed-rate mortgage rate stood above 5.4% last week, just over 2 percentage points from the beginning of the year.

Powell said the financial market response shows that investors are getting the Fed’s message.

“We like to work through expectations and I’m not blessed with a specific day’s reading, but based on the way we’re talking about the economy, financial markets have been able to respond well in advance.”

(Updated with more Powell comments.)

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