Last rate hike? Fed's Jerome Powell expected to face more opposition

Chair Jerome Powell has achieved a near-perfect consensus as the Federal Reserve raised interest rates aggressively. Now, with the hiking campaign drawing to a close, that agreement is going to be a lot tougher to maintain.

With inflation as high as 9 per cent in the past year, Powell’s colleagues were all-in on the fight to curb price pressures, with another 25 basis-point hike expected Wednesday that might be the concluding increase. Yet that consensus is already showing signs of splintering, amid inflation that remains too high while Fed staff — and many private economists — see a recession in coming months.

Since Covid-19 threatened the US economy in early 2020, Powell has secured more than 98 per cent of the Federal Open Market Committee’s votes in favor of his actions, first to stimulate growth during the recession and then to fight inflation in the past year. Rising dissents are more likely as the choices of battling inflation or much higher unemployment become more troubling. 

“This could be a pivotal meeting,” said Diane Swonk, chief economist at KPMG LLP. “We are getting close to the hardest mile for the Fed in this marathon — the part where backlash to rate hikes will intensify, in ways no one on the Fed has had to weather.” 

Fed officials have signaled that the FOMC will hike rates another quarter point at its May 2-3 meeting to a range of 5 per cent to 5.25 per cent, the highest since 2007 and part of the most aggressive tightening campaign since Paul Volcker took on double-digit inflation four decades ago.

The economy is also being buffeted by tighter credit in the wake of the failures of Silicon Valley Bank and Signature Bank. That’s equivalent to another half-point hike or more in the Fed’s target rate, according to economists surveyed by Bloomberg, resulting in tighter conditions across loan categories and especially for commercial real estate, where significant losses are expected.