Federal Reserve Chairman Jerome Powell on Thursday said he agrees with what many economists are saying — that the U.S. central bank was late to pivot policy and start raising its benchmark interest rate.
“I have said, and I will say again that, you know, if you had perfect hindsight, you’d go back and it probably would have been better for us to have raised rates a little sooner,” Powell said, in an interview with Marketplace that will air this evening.
“I’m not sure how much difference it would have made, but we have to make decisions in real time, based on what we know then, and we did the best we could,” he added.
The Fed didn’t hike rates until March. Some economists, including former Fed Gov. Randal Quarles, think the first move should have come last September.
On Thursday, the Senate confirmed Powell to a second four-year term as Fed chairman, ending in 2026.
Economists say Powell gets an “incomplete” on his first term, at least until it is clear whether the Fed can bring down inflation from an over-8% annual rate without causing a severe contraction.
Asked for five words to describe his thinking, Powell said “get inflation under control.”
Powell has said that it is 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 that the central bank’s plans to achieve a soft landing isn’t entirely in its own hands.
“So the question 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 be raising rates to try to “moderate demand in a way that lets the labor market get back in balance and help inflation get back to 2%,” he said.
At its policy meeting last week, the Fed raised its benchmark interest rate by a half-percentage-point increase, the biggest hike in over 20 years.
At the meeting, Powell said the Fed thought that “if the economy performs about as expected, that 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 larger rate hike — a 75-basis-point move that has only been made one time — Powell prevaricated.
He quibbled with the suggestion that he had taken such a large move “off the table.”
“I said we weren’t actively considering that,” Powell said.
“But I would just say, we have a series of expectations about the economy. If things come in better than we expect, then we’re prepared to do less. If they come in worse than we expect, then we’re prepared to do more.”
Asked if “prepared to do more” meant a 75-basis-point hike, Powell said it was clear the central bankers would “adapt to the incoming data and the evolving outlook.”
Financial markets have been unsettled since the Fed’s meeting on May 4. The Dow Jones Industrial Average
has fallen for six straight trading sessions, while the S&P 500 index
has flirted with bear-market territory. The yield on the 10-year Treasury note
has remained just below 3%.