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Powell Supports Quarter-Point Fed Rate Hike this Month

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Chairman Jerome Powell on Wednesday said that he is in favor of a quarter-point increase in the benchmark short-term interest rate of the Federal Reserve later this month than a larger increase proposed by other policymakers, a report said.

However, Powell said he might consider a higher rate if inflation doesn’t slow down significantly this year as what the Fed anticipates it to.

​”We have an expectation that inflation will peak and begin to come down this year,” Powell said. But he added: “To the extent inflation comes in higher … then we would be prepared to move more aggressively” by raising rates by more than a quarter-point later this year.

Powell told the House Financial Services Committee on the first of two days of semiannual testimony to Congress that he is “inclined to propose and support” a quarter-point rate increase to fight the acceleration of inflation.

Some Fed officials have recently backed an increase of a similar magnitude, and a few have stated support for a half-point increase.  A rise in Fed rates usually results in higher borrowing costs for both businesses and consumers, including homes, credit cards, and auto loans.

The stock market jumped due to Powell’s backing of the smaller increase. The S&P 500 increased by 1.7% in mid-day trading.

The increase, the first since 2018, would also pose a difficult issue for the Fed in raising rates just right to combat inflation (now at a four-decade high), but also not fast enough to stifle hiring and growth.

Powell believes that with unemployment being low at 4% and with consumer spending being strong, the economy will be able to withstand moderately increased borrowing costs.

This story originally appeared on the Associated Press News.

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