Jumbo Fed Rate Hike Is in Play as Powell Sticks to Hawkish View

What You Need to Know

U.S. central bankers meet on Sept. 20-21, and Powell has kept the option open for another 75 basis-point move.

Federal Reserve Chair Jerome Powell said officials won’t flinch in the battle to curb inflation, hardening expectations that they’ll deliver a third straight jumbo rate hike later this month.

“We need to act now, forthrightly, strongly as we have been doing,” Powell said Thursday in remarks at the Cato Institute’s monetary policy conference in Washington. “My colleagues and I are strongly committed to this project and will keep at it.” He spoke with a moderator in a virtual question-and-answer session.

U.S. central bankers are raising interest rates rapidly to curb the hottest inflation in four decades. They next meet on Sept. 20-21 and Powell has kept the option open for another 75 basis-point move — following increases of that size in June and July — or a half-point increase. He’s said the decision depends on the “totality” of the incoming data.

Officials will get an important update on Tuesday with the release of consumer prices for August. Economists surveyed by Bloomberg forecast an 8.1% rise for the 12-month period versus 8.5% in July.

“The Fed has and accepts responsibility for price stability,” Powell said, noting that history cautions against prematurely loosening policy. That reiterates a warning he issued Aug. 26 at the Fed’s annual retreat in Jackson Hole, Wyoming.

Investors have hardened their bets that the Fed would go big again after hawkish comments from other Fed officials. That trend continued after the European Central Bank raised rates earlier on Thursday by 75 basis points and futures markets show a Fed hike of that size almost fully priced in for later this month.

Nor were erstwhile Fed doves pushing back. Chicago Fed President Charles Evans, speaking in Illinois later on Thursday, said that officials “could very well do 75 in September,” noting that while his mind was not made up, “I do know that we need to be increasing interest rates up to a substantially higher level than where they are now.”

In addition, a growing number of economists see a 75 basis-point hike as the likely outcome. Following Thursday’s remarks, analysts at Bank of America Corp., Barclays Plc and Jefferies LLC changed their forecast to the jumbo move from a 50 basis-point increase. Goldman Sachs Group Inc. economists did the same late Wednesday.