Fighting inflation has ‘a long way to go,’ says Federal Reserve Chairman Jerome Powell
Federal Reserve Chairman Jerome Powell said on Tuesday that the central bank’s fight against inflation had “a long way to go”, citing a hit jobs report last week that showed the market labor remained hot despite the Fed’s efforts to cool the economy.
“This process will likely take a long time,” Powell said. “It’s not likely to be smooth.”
Consumer prices rose 6.5% in the year to December, a significant slowdown from the summer peak but more than triple the 2% target of the Federal Reserve.
Speaking at the Economic Club in Washington, DC, Powell said the “extraordinarily strong” employment numbers took the Fed by surprise.
The economy added 517,000 jobs in January and the unemployment rate fell to its lowest level in 53 years.
“It’s definitely stronger than anyone I know expected,” Powell said. “We didn’t expect him to be this strong.”
“It kind of shows you why we think this will be a process that will take a long time,” he added.
The Fed recently imposed the latest in an aggressive series of borrowing cost increases as it tries to curb price increases by slowing the economy and stifling demand. This approach, however, risks tipping the US economy into a recession and putting millions of people out of work.
Powell has repeatedly said the Fed will keep its benchmark interest rate high until inflation hits the central bank’s 2% target. This means borrowers face higher costs for everything from car loans to credit card debt to mortgages.
While Powell said the strong jobs report indicates that the fight against inflation is only in its “very early stages”, he took the labor boom as a sign positive.
“It’s a good thing that inflation has started to come down at no cost to the labor market,” he said.
Powell’s remarks come a day after Treasury Secretary Janet Yellen dismissed recession fears in an interview with “Good Morning America” Monday, saying the economy remains “strong and resilient.”
“You don’t have a recession when you have 500,000 jobs and the lowest unemployment rate in over 50 years,” Yellen said.
Last month’s government data showed that the US economy enjoyed robust growth at the end of last year.
Still, most economists expect a recession later this year as interest rate hikes weigh on the economy, according to a survey published by Bloomberg last month. Forecasters expect gross domestic product to fall in the second and third quarters of this year, according to the survey.
Given that some sectors of the economy have defied an expected slowdown, more rate hikes are likely to come, Powell said.
“We think we’re going to have to do some more rate increases,” he said. “And we think we’re going to have to keep the policy at a restrictive level for some time.”