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WASHINGTON, D.C. – US Federal Reserve Chairman Jerome Powell stated on Monday that the central bank will act “more aggressively” if necessary to contain inflation by raising the federal funds rate by more than 25 basis points at its policy meetings.

“The labor market is extremely strong, and inflation is far too high,” Powell said in prepared remarks for the annual economic policy conference of the National Association for Business Economics (NABE) in Washington, D.C.

“There is an obvious need to move quickly to restore monetary policy to a more neutral level, and then to more restrictive levels if necessary to reestablish price stability,” he said.

The Federal Reserve raised its benchmark interest rate by a quarter percentage point last week, from near zero to a range of 0.25 percent to 0.5 percent. This was the central bank’s first rate hike since 2018 and a significant step toward exiting the ultra-loose monetary policy enacted at the outbreak.

The Federal Reserve’s quarterly economic projections released last week indicated that the majority of Fed officials expect the federal funds rate to rise to 1.9 percent by year’s end and to around 2.8 percent by 2023.

This equates to a total of seven quarter-point rate increases this year and another three or four next year.

The central bank chief stated at the NABE event that the labor market is “extremely tight,” significantly tighter than it was prior to the pandemic, with nominal wages rising at the fastest rate in decades.

Meanwhile, inflation has been “significantly greater” and “more persistent” than forecasters had anticipated, Powell said, noting that inflation increased “sharply” in the fall due to continued supply disruptions caused by coronavirus disease 2019 (Covid-19) and strong demand.

At the time of the Fed’s June 2021 meeting, every member of the Federal Open Market Committee (FOMC) and all but one of the 35 submissions to the Survey of Professional Forecasters forecasted inflation of less than 4% in 2021, but inflation came in at 5.5 percent, according to Powell.

Since the December meeting of the Federal Open Market Committee, the median FOMC projection for year-end 2022 has increased from 2.6 percent to 4.3 percent.

“Why have forecasts been so wildly inaccurate? A significant part of the explanation, in my opinion, is that forecasters vastly underestimated the severity and persistence of supply-side frictions, which, when combined with strong demand, particularly for durable goods, resulted in surprisingly high inflation “Powell remarked.

Noting that the inflation outlook had deteriorated significantly this year, even before the Russia-Ukraine conflict, the Fed chief warned that the war’s and western sanctions against Russia’s effects on the US economy could be significant.

Along with the direct effects of higher global oil and commodity prices, Powell stated that the war and related events are “likely to restrain economic activity abroad and further disrupt supply chains, resulting in spillover effects on the US economy.”

“While it appears likely that hoped-for supply-side relief will eventually occur as the world settles into a new normal, the timing and scope of that relief are highly uncertain,” Powell said, adding that the central bank will focus on “actual progress” on these issues rather than assuming significant near-term supply-side relief.

“If we believe it is appropriate to act more aggressively by raising the federal funds rate by more than 25 basis points at a meeting or meetings, we will do so,” the Fed chairman said.

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