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Powell: It would have been better if the Fed had raised interest rates “a little earlier”

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Federal Reserve Chairman Jerome Powell said on Thursday he agrees with what many economists are saying – that the US central bank is overdue to pivot policy and start raising its interest rate. reference interest.

“I said, and I’ll say it again, you know, if you had perfect hindsight, you would come back and it probably would have been better for us to raise the rates a little earlier,” Powell said, in an interview. with Marketplace which airs tonight.

“I don’t know what difference it would have made, but we have to make decisions in real time, based on what we know then, and we did our best,” he added.

The Fed only raised rates in March. Some economists, including former Fed Governor Randal Quarles, think the first move should have come last September.

On Thursday, the Senate confirmed Powell for a second four-year term as Fed chairman, ending in 2026.

Economists say Powell gets an ‘incomplete’ in his first term, at least until it’s clear whether the Fed can bring inflation down by an annual rate above 8% without causing a severe contraction .

Asked for five words to describe his thinking, Powell said he was “in control of inflation”.

Powell said it was possible for the Fed to cool inflation without causing a severe recession. This is called a “soft landing”,

In the Marketplace interview, the Fed Chairman said the central bank’s plans for achieving a soft landing are not entirely in his hands.

“So whether we can execute a soft landing or not, it may actually depend on factors that we don’t control,” Powell said.

What the Fed can control is demand in the economy, and it will raise rates to try to “moderate demand in a way that allows the labor market to rebalance and help inflation to back to 2%,” he said.

At its policy meeting last week, the Fed raised its benchmark interest rate by half a percentage point, the biggest hike in more than 20 years.

At the meeting, Powell said the Fed believes “if the economy behaves roughly as expected, it would be appropriate for there to be additional 50 basis point increases at the next two meetings.”

Asked about the possibility of an even bigger rate hike — a 75 basis point move that’s only been made once — Powell dithered.

He quibbled with the suggestion that he had taken such a big “off the table” move.

“I said we weren’t actively considering that,” Powell said.

“But I would just say we have a set of expectations about the economy. If things go better than expected, we’re ready to do less. If they’re worse than expected, we’re ready to do more.

Asked if “ready to do more” meant a 75 basis point hike, Powell said it was clear central bankers would “adapt to incoming data and changing outlooks.”

Financial markets have been destabilized since the May 4 Fed meeting. The Dow Jones Industrial Average DJIA,
-0.33%
fell for six consecutive trading sessions, while the S&P 500 SPX index,
-0.13%
flirted with bear market territory. The yield of the 10-year Treasury note TMUBMUSD10Y,
2.915%
remained just below 3%.