After remaining stubbornly dovish last year, Federal Reserve Chairman Jerome Powell on Wednesday jumped the central bank squarely into the hawkish camp at his press conference on Wednesday.
“The March FOMC meeting will go down in history as the one in which the committee saw the light,” said Stephen Stanley, chief economist at Amherst Pierpont, a dogged critic last year of the Fed’s easy policy stance.
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“This is a group that has got some urgency. They may view this as their challenge to sustain the legacy of the central bankers that tamed inflation,” said Carl Tannenbaum, chief economist at Northern Trust, in an interview.
For the first time in memory, the Fed has indicated they are prepared to raise rates above the neutral rate of interest.
If the Fed pushes its policy rate to 3%, “I’m not sure the economy is going to be able to well,” said Tannenbaum.
The “dot-plot” was far more hawkish than expected. It calls for a total of six more rate hikes following today’s 25-basis-point move. The Fed projects rates going to 2.8% in 2023 and staying at that level in 2024.
“This is a huge shift in the monetary policy outlook since December,” when the median FOMC view was for only three quarter-point rate hikes in 2022 and three more in 2023, said Scott Anderson, chief economist at Bank of the West.
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The very hawkish lean of the Fed raised immediate concerns about a recession.
Powell on several occasions waved that concern away.
“The American economy is very strong and well-positioned to handle tighter monetary policy,” he said at one point.
But economists were decidedly concerned.
Fed members think they can do the heavy lifting to rein in inflation without triggering a recession, said Diane Swonk, chief economist at Grant Thornton.
“There is no history of doing that with the kind of inflation we are currently seeing,” she said.