Federal Reserve Chair, Jerome Powell. Source: USA Today Network/Reuters
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  • The United States’ central bank broadly signals plans to lift interest rates by half a percentage point at its May policy meeting
  • Federal Reserve Chair Jerome Powell confirmed on Thursday night a half-point hike was “on the table” for next month’s meeting
  • It’s a far more hawkish stance from the Federal Reserve than projected at its March meeting when policymakers largely expected the target overnight federal funds rate to be increased to 1.9 per cent by the end of the year
  • Mr Powell says the Fed will need to count on monetary policy to curb rising prices, and it will urge businesses to reduce the demand for workers in a thriving job market
  • The comments come after the US inflation rate in March hit a 40-year high of 8.5 per cent — well above the Fed’s target of 2 per cent

The United States’ central bank has broadly signalled plans to lift interest rates by half a percentage point at its May policy meeting.

Federal Reserve Chair Jerome Powell confirmed in an International Monetary Fund (IMF) discussion on Thursday a half-point hike was “on the table” for next month’s meeting as the bank takes a more aggressive stance on inflation.

The US inflation rate in March hit a 40-year high of 8.5 per cent — well above the Fed’s target of 2 per cent. With inflation running rampant, Mr Powell said it was appropriate for the bank to be “moving a little more quickly”.

The Fed Chair also hinted that further half-point increases were on the cards as the bank worked to curb rising consumer prices across the US. He said investors pricing in a series of half-point hikes were “reacting appropriately, generally”.

It’s a far more hawkish stance from the Federal Reserve than projected at its March meeting when policymakers largely expected the target overnight federal funds rate to be increased to 1.9 per cent by the end of the year.

Traders in contracts linked to the overnight rate now seem to be expecting the Federal Reserve to increase the rate to between 2.75 per cent and 3 per cent by this time.

However, Mr Powell acknowledged in his latest comments that rapidly increasing interest rates without plunging the economy into a recession would not be an easy task for the Federal Reserve.

“Our goal is to use our tools to get demand and supply back in sync … and do so without a slowdown that amounts to a recession,” Mr Powell said.

“It is going to be very challenging.”

Prices of goods and services in the US have continued to increase dramatically over 2022 after the Fed initially diagnosed increasing inflation as “transitory” last year, saying it expected prices to stabilise with some external help. When inflation didn’t ease, the bank admitted the transitory label was a misdiagnosis.

Mr Powell this week said the Fed will need to count on monetary policy to curb rising prices, and it will urge businesses to reduce the demand for workers in a thriving job market.

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