During a news conference after the Fed announced another massive 75-basis-point hike Wednesday, Powell was asked whether the window for a “soft landing” (meaning a scenario in which inflation is brought down without a recession) has narrowed.
“Has it narrowed? Yes,” Powell told reporters. “Is it still possible? Yes. We’ve always said it was going to be difficult, but I think to the extent rates have to go higher and stay higher for longer, it becomes harder to see the path — it’s narrowed. I would say the path has narrowed over the course of the last year, really.”
Mere weeks ago, a good chunk of economists believed the Fed could pull off a soft landing, but since then, predictions have become gloomier in the face of continued high inflation, as evidenced by the most recent consumer price index report and now another massive rate hike on Wednesday.
“No one knows whether there is going to be a recession or not and, if so, how bad that recession would be, and our job is to restore price stability so that we can have a strong labor market that benefits all over time, and that’s what we’re going to do,” Powell said during the news conference.
Wednesday’s 75-basis-point hike marks the fourth consecutive rate increase of that scale, an aggressive course of action that illustrates the Fed’s resolve to drive down inflation.
The Fed’s interest rate target has risen by 3% in the past six months, the most forceful rate hikes in more than four decades. The target is now 3.75% to 4%, the highest it has been since the financial crisis in 2008.
Most investors priced in a 75-basis-point hike prior to this week’s decision, and stocks initially bounced upon the news, although markets started to tumble as a result of Powell’s comments on a potential recession and remarks that it is “premature” to start talking about pausing the rate hikes.
“We still have some ways to go, and incoming data since our last meeting suggests that the ultimate level of interest rates will be higher than previously expected,” he said.
The Dow Jones Industrial Average was down more than 500 points at close. The S&P 500 and the Nasdaq composite were both in the red by more than 2%, with the latter dropping over 3.3% of its total value following the speech.
“The inflation picture has become more and more challenging over the course of this year, without question,” Powell said.