No ‘soft landing’ likely for US economy – Fed Chairman – RT World News

The Federal Reserve will aggressively raise interest rates, but balancing that with inflation could prove ‘difficult’

Federal Reserve Chairman Jerome Powell said on Monday that the central bank would raise interest rates “more aggressive” in order to control rising prices. However, he acknowledged that doing this without crushing the economy would prove “difficult,” and warned that a “soft landing” is not guaranteed.

Powell made his comments in a speech to the National Association for Business Economics, which was reported by several US media outlets.

“We will take the necessary measures to ensure a return to price stability,” he said. “In particular, if we conclude that it is appropriate to act more aggressively by raising the federal funds rate by more than 25 basis points at a meeting or meetings, we will do so.”

A single basis point is equal to 0.01%. Last week, the Federal Reserve raised rates by 25 points, or 0.25%, bringing the cost of borrowing to 0.5%, where it had remained near zero for the past three years. Fed officials predicted six more such increases over the rest of 2022 and at least three in 2023.

The Federal Reserve controls the short-term borrowing rate of commercial banks, which then pass this rate on to their customers. Higher rates make borrowing less viable, which contracts the economy and lowers inflation. This method of controlling inflation was practiced most dramatically in the 1970s, when the Fed raised interest rates to over 20% and stopped all bond purchases.

Under the Trump and Biden administrations, interest rates have been kept rock bottom, while both presidents have flooded the economy with money: Trump overseeing the creation of a quarter of all dollars ever created in 2020 and Biden by spending more in the first eight months of his presidency than Trump in 2018 and 2019 combined, according to Fox News.

Powell warned that readjusting the US economy downward will not be a simple task. “No one expects a soft landing to be easy in today’s environment,” he said on Monday, adding: “Very few things are simple in today’s environment.”

Monetary policy – ​​the discipline of economic management that includes the manipulation of interest rates – is a “blunt instrument, not capable of surgical precision,” he went on to add that “My colleagues and I will do our best to succeed in this difficult task.”

Core inflation – a measure often cited by the Fed that excludes food and energy costs – rose 5.2% in January, the biggest increase in 38 years from the previous January. Separate measurements from the US Department of Commerce showed that the cost of goods and services rose 7% in the fourth quarter of 2021, with food prices up 9% and energy costs up 34%. Much larger increases in the cost of certain items, such as meat, have also been reported by US shoppers.

Once described by the Biden administration as “transient,” inflation was aggravated by coronavirus-related supply chain disruptions and shocks in global energy, grain and fertilizer markets following the outbreak of war in Ukraine.

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