Powell invokes Volcker spirit with second successive 75 point hike
The US Federal Reserve today doubled down on its efforts to chase down the biggest inflation shock in recent memory by hiking rates 75 basis points for the second time in a row.
Chair Jerome Powell and the rest of the federal open market committee backed another big rise to cool America’s overheating jobs market and soaring food and energy prices.
The Fed has now raised the world’s most important interest rate 225 basis points since March to between 2.25-2.5 per cent.
That pace of monetary policy tightening is one of the quickest since former Fed chief Paul Volcker led a charge against another huge inflation surge in the 1980s by hoisting borrowing costs steeply.
Prices are up 9.1 per cent over the last year across the pond, the biggest increase since the early 1980s, when Volcker headed the central bank.
The Fed sent a mixed message to markets that indicated it will keep raising rates rapidly if inflation persists or ease tightening if the economy slows markedly.
“The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee’s goals,” it said.
The Fed has a mandate to keep inflation at two per cent over the long-term and achieve maximum employment. “Recent indicators of spending and production have softened,” the Fed observed.
The Fed is walking a thin line between curbing price rises and avoiding tipping the US economy into recession – known as a “soft landing”.
New GDP figures published tomorrow could reveal America has been in recession for the first half of this year.
The economy shrank 1.6 per cent in the first three months of this year and experts think there is strong risk output dipped again in the most recent quarter.
The Bank of England and European Central Bank (ECB) are grappling with similar headaches. Both the UK and eurozone economies have been forecast by analysts to reverse soon.
Governor Andrew Bailey and co is anticipated to send rates up 50 basis points next Thursday, which would be the steepest hike since the Bank was made independent 25 years ago.
The Bank has raised rates five times in a row to a 13-year high of 1.25 per cent.
ECB president Christine Lagarde shocked markets last week by marking the monetary authority’s first rate rise in over a decade with a 50 basis point move.
She had recently said borrowing costs will jump 25 basis points in July and possibly 50 basis points in September.
The International Monetary Fund urged the world’s top central banks not to waiver in the face of slowing growth and focus on taming inflation.