Jay Powell has said the Federal Reserve needs to move “expeditiously” towards tighter monetary policy and is prepared to act even more aggressively if necessary to tackle excessive inflation.

In remarks delivered at a conference hosted by the National Association for Business Economics on Monday, the Fed chair laid out the case for a series of interest rate increases this year and substantive steps to shrink the central bank’s $9tn balance sheet, as it confronted a labour market that looked “extremely tight” and inflation that was “much too high”.

Powell expressed confidence that the Fed could continue to tighten policy without sparking a recession, which some fear is inevitable.

“There is an obvious need to move expeditiously to return the stance of monetary policy to a more neutral level and then to move to more restrictive levels if that is what is required to restore price stability,” he said.

The “neutral” rate is one that neither aids nor hampers growth and most policymakers believe that figure to be around 2.4 per cent.

Powell’s comments come just days after the Fed delivered its first interest rate increase since 2018, which is expected to be the first of many rate rises this year and into 2023.

US stocks sold off after Powell affirmed the Fed’s commitment to using its tools to quell inflation, including possibly raising rates by half a percentage point, rather than the standard quarter-point increase — a move the central bank has not made since 2000.

Powell said there was “nothing” to prevent the bank moving forward with a half point rate increase in May but added that the committee had not yet made a decision on the next policy move.

The S&P 500 was down as much as 0.8 per cent before recouping some of those losses, and US government bonds remained under pressure. The benchmark 10-year yield was up 0.15 percentage points on the day at 2.3 per cent.

Treasuries have suffered their worst month since Donald Trump was elected president in 2016, driven by inflation fears exacerbated by Russia’s invasion of Ukraine and by tightening in the supply of oil and other key commodities.

A majority of Fed officials signalled last week that the benchmark policy rate would jump to 1.9 per cent by the end of the year, from the current range of 0.25 per cent to 0.50 per cent. Getting there would require six quarter-point increases at each of the remaining gatherings of the Federal Open Market Committee this year.

The so-called “dot plot” of individual policymakers’ interest rate projections showed seven out of 16 officials expected rates to rise above 2 per cent in 2022, indicating at least one of the adjustments this year will be a half point. Most officials, Meanwhile, predicted rates would rise to 2.8 per cent in 2023.

Powell said on Monday a “substantial firming in the stance of policy” was necessary despite a sharp escalation in geopolitical tensions tied to Russia’s invasion of Ukraine, and would continue until the Fed saw signs of actual progress on supply-related issues.

The war was expected to add “near-term upward pressure” to the prices of energy, food and commodities at a time of “already too high inflation”.

The Fed chair’s challenge this year will be in forging consensus among committee members about how swiftly monetary policy needs to tighten in order to bring inflation in line with the Fed’s 2 per cent target.

Officials last week raised the median estimate for core inflation this year to 4.1 per cent from 2.7 per cent in December. Their forecasts for the funds rate during this year ranged between 1.4 per cent and 3.1 per cent.

Raphael Bostic, president of the Atlanta Fed, said on Monday that he supported just five more interest rate increases this year, which would bring the fed funds rate to roughly 1.63 per cent. He pushed back on the idea that the Fed would need to “ actively slow the economy” in order to get inflation back under control by moving rates above neutral.

Bostic’s views stand in sharp contrast to those outlined by James Bullard, president of the St Louis Fed, who on Friday said he supported the fed funds rate rising above 3 per cent this year.

Bullard dissented from the committee’s decision to raise the benchmark interest rate just a quarter of a percentage point last week, favouring a half-point move instead.

Bullard was joined on Friday by Christopher Waller, a Fed governor, who advocated for “front-loading” rate increases this year, with half-point rate rises “at one or multiple meetings in the near future”. He supports a policy rate above a range of 2 per cent and 2.25 per cent by the end of the year and for the Fed to soon begin shrinking its $9tn balance sheet.

Powell on Monday pushed back on concerns that future monetary policy tightening would cause a recession, citing episodes in 1965, 1984 and 1994 when the Fed slowed an overheated economy without prompting a sharp contraction.

Fed officials forecast marginally slower growth this year, which they see steadying at 2 per cent in 2024. They also expect the unemployment rate to stabilise at 3.5 per cent before ticking up to 3.6 per cent in two years’ time. Economists have previously warned these projections amount to “wishful thinking”.

“I hasten to add that no one expects that bringing about a soft landing will be straightforward in the current context — very little is straightforward in the current context,” Powell warned. “And monetary policy is often said to be a blunt instrument, not capable of surgical precision.”