By Ann Saphir

(Reuters) – U.S. central banks must “expectiously” bring down too high inflation, Federal Reserve Chair Jerome Powell declared on Monday. Powell also indicated that they could raise interest rates more frequently than normal if it was necessary.

Powell stated that the labor market was very strong and that inflation is too high in his remarks to be delivered at a National Association of Business Economics conference. It is imperative to act quickly to change the stance on monetary policy back to neutral, then move to tighter levels if necessary to restore price stability.

He added that, specifically, “if the meeting decides it is necessary to take a more aggressive approach by increasing the federal funds rate more than 25 basispoints at a meeting (or more), we will do so.”

Fed policymakers increased interest rates last week for the first-time in three years, and they indicated future rate rises. Most of them see the short-term policy rate – pinned for two years near zero – at 1.9% by the end of this year, a pace that could be achieved with quarter-percentage-point increases at each of their next six policy meetings.

Fed policymakers anticipate that the benchmark overnight rate of the central bank will be 2.8% by the end next year. This would bring borrowing costs down to levels where they can actually begin to bite into growth. Fed policymakers consider the neutral level to be somewhere in between 2.25 and 2.5%.

Powell said Monday, too that Fed could reduce its huge balance sheet by May.

Current unemployment rates in the United States are 3.8%, and there is a record number of per-person jobs.

INFLATION RISKS

However, the Fed’s preferred gauge for inflation shows that it is now three times higher than the 2% target. It has been driven up by supply chain problems that took longer to resolve than anyone expected. And that situation could worsen as China responds in kind to COVID-19 increases with new lockdowns.

Russia’s conflict in Ukraine has pushed up oil prices and is threatening inflation. Powell observed that the United States, the largest oil producer in the world, is more able to absorb an oil shock today than they were in the 1970s.

Powell stated that although the Fed would normally not tighten its monetary policy in normal circumstances to deal with what may end up being a temporary rise in commodity prices in the final, the risk was rising that longer-term inflation might push long-term expectations uncomfortably high.

The Fed forecasted that supply chain pressures would decrease last year and was again disappointed.

Powell Monday stated that “As policy is set, we will focus on actual progress on those issues” and would not accept significant supply-side relief in the near future.

Fed policymakers are determined to reduce inflation and not slow down growth. Last week’s forecasts suggest that this path is possible. However, unemployment remains at 3.6% while the median inflation view drops to 2.3%.

Powell stated Monday that he expected inflation to drop to “nearly 2%” in the next three-years. While a “soft landing”, while it may not seem easy, there are plenty of precedents.

“The economy has a strong foundation and can handle tighter monetary policy,” he stated.