Powell says ‘inflation is much too high’ and the Fed will take ‘necessary steps’ to address

U.S. Federal Reserve Chairman Jerome Powell addresses an online only news conference in a frame grab from U.S. Federal Reserve video broadcast from the Federal Reserve building in Washington, U.S., January 26, 2022.

Powell said on Monday that he would take tough action on inflation, which he said jeopardizes an otherwise strong economic recovery.

The central bank leader said in prepared remarks for the National Association for Business Economics that the labor market is very strong and inflation is too high.

Less than a week after the Fed raised interest rates for the first time in more than three years in an attempt to battle inflation that is running at its highest level in 40 years, the speech comes.

Powell said interest rate hikes would continue until inflation is under control. The quarter-percentage-point move was approved at the meeting.

He said that they would take the necessary steps to ensure a return to price stability. If we determine that we need to tighten beyond common measures of neutral and restrictive, we will do that as well.

A basis point is the same as a percentage. 25 basis point increases are likely at each of the remaining six meetings, according to officials. The next hike could be 50 basis points, according to the markets.

The stock market fell to their lows of the session after Powell's remarks.

The consumer price index shows inflation at 7.9% on a 12-month basis. The Fed prefers a measure that has prices up 5.2%, well above the central bank's 2% target.

As he has done before, Powell attributed much of the pressures coming from pandemic-specific factors, in particular the increased demand for goods over services that supply could not meet. Fed officials and many economists underestimated how long the pressures would last.

The Fed and Congress have provided more than $10 trillion in fiscal and monetaryStimulus since the start of the Pandemic. Powell believes that inflation will drift back to the Fed's target, but it's time for the historically easy policies to end.

It seems likely that hope for supply-side healing will come over time as the world eventually settles into some new normal, but the timing and scope of that relief are highly uncertain.

Powell said that the Russian invasion of Ukraine is adding to supply chain and inflation pressures. Under normal circumstances, the Fed wouldn't change policy. He said that policymakers have to be careful with the situation.

When employment and inflation are close to our objectives, monetary policy would look through a brief burst of inflation.

Powell said last week that the FOMC is prepared to run off some of the $9 trillion in assets on its balance sheet. The process begins as soon as May, but no decision has been made.