The super-sized, 75-basis point interest rate hike approved by the Federal Reserve on Wednesday may not be the last of its kind, Chairman Jerome Powell said on Wednesday.
Speaking at the Fed's post-meeting press conference in Washington, Powell told reports that policymakers will consider another 75-basis point increase in July as they intensify their fight to bring down the hottest inflation in four decades.
"Clearly, today’s 75-basis-point increase is an unusually large one, and I do not expect moves of this size to be common," Powell said. "From the perspective of today, either a 50-basis-point or a 75-basis-point increase seems most likely at our next meeting."
His comments came shortly after the Fed voted to raise its benchmark interest rate by 75-basis points for the first time since 1994, underscoring just how serious policymakers are about tackling the inflation crisis after a string of alarming economic reports. The move puts the key benchmark federal funds rate at a range between 1.50% to 1.75%, the highest since the pandemic began two years ago.
But a dismal Labor Department report last week showed the consumer price index rose 8.6% in May from a year ago, the fastest pace of increase since December 1981, dashing economists' hopes that the inflation spike was starting to fade. And a different survey released Monday showed that households are bracing for notably faster price increases, a worrisome sign because Fed officials believe such expectations can be self-fulfilling.
Until just a few days ago, economists widely expected the central bank to proceed with a 50-basis point rate hike — double the typical size — at its June meeting. Policymakers had approved a 50-basis point hike in May and laid out a roadmap for similarly sized increases at their upcoming meetings, assuming that data evolved as expected.
In explaining the Fed's decision during a post-meeting press conference, Chairman Jerome Powell said policymakers were looking for evidence that monthly inflation was flattening or starting to fall. With consumer prices repeatedly surprising to the upside and inflation expectations unexpectedly climbing higher, officials determined that "strong action was warranted," he said.
Officials also laid out an aggressive path of rate increases for the remainder of the year. New economic projections released after the two-day meeting showed policymakers expect interest rates to hit 3.4% by the end of 2022, which would be the highest level since 2008.
Stocks rallied following Powell's suggestion that another 75-basis point hike could be coming next month, though experts expect to see continued volatility — particularly because of concerns that the Fed may inadvertently trigger a recession.
"In the absence of a sharp decline in energy prices and significant improvement in supply chains, inflation would likely to remain elevated with lesser tightening," said David Berson, Nationwide chief economist. "The Fed has a knife’s edge in front of it between recession with lower inflation, or high inflation, with an eventual, and likely even worse, recession."