U.S. Federal Reserve Chairman Jerome Powell arrives for a Senate Banking, Housing, and Urban Affairs Committee hearing in Washington, DC, U.S., Wednesday, June 22, 2022.
Ting Shen | Bloomberg | Getty Images
Federal Reserve Chairman Jerome Powell told congressional lawmakers on Wednesday that the central bank is committed to bringing inflation down and has the ability to do so.
“At the Fed, we understand the difficulties caused by high inflation. We are firmly committed to bringing inflation down, and we are moving quickly to do so,” the Fed chief said in a speech before the Senate Committee on Public Health. banks. “We have both the tools we need and the determination it will take to restore price stability on behalf of American families and businesses.”
In addition to expressing resolve on inflation, Powell said economic conditions are generally favorable, with a strong labor market and still high demand.
However, he acknowledged that inflation was too high and needed to come down.
“Over the next few months, we will be looking for compelling evidence that inflation is declining, consistent with a return to 2% inflation,” Powell said. “We expect the ongoing rate increases to be appropriate; the pace of these changes will continue to depend on incoming data and the changing outlook for the economy.”
He noted that the war in Ukraine and Covid-related shutdowns in China are adding to inflationary pressures, and added that the problem is not unique to the United States but affects many global economies.
Powell’s remarks are part of a biannual monetary policy report mandated by Congress – more commonly known in the markets as the Humphrey Hawkins Report and Testimony, for the act that mandated them.
This is a particularly delicate time for Fed policy.
In its last three meetings, the central bank has raised rates by a cumulative 150 basis points – 1.5 percentage points – in a bid to tackle inflation which is at its fastest annual pace in more than 40 year.
The 75 basis point increase at last week’s Federal Open Market Committee meeting marked the biggest gain since 1994.
Sen. Elizabeth Warren (D-Mass.) warned Powell that continued rate hikes could “tip this economy into recession” without stopping inflation.
“You know what’s worse than high inflation and low unemployment is high inflation and a recession with millions out of work, and I hope you reconsider that before you bring the economy down. ‘a cliff,’ she said.
Republican senators pressed Powell to quell inflation and questioned whether White House policies such as energy industry regulation are increasing price pressures.
“Inflation is hitting my people so hard they’re coughing up bonds,” said Sen. John Kennedy (R-La.)
“We have a hell of a mess right now,” Kennedy added. “You are the most powerful man in America, possibly the world.”
Powell stressed that he believed tighter monetary policy would be an effective tool against inflation, and said he believed the economy was well positioned to handle higher rates. However, he also told Warren that higher rates would do little to reduce soaring food and gas prices.
Cracks have appeared in the economy this year, indicating higher rates are ahead as the economy is already slowing.
Gross domestic product fell at an annualized rate of 1.5% in the first quarter and is expected to remain flat in the second quarter, according to the Atlanta Fed. Home sales have fallen and there are even signs that the labor market is slowly slowing at a time when inflation-adjusted wages have fallen 3% over the past year.
Despite the economic swings, Powell and his fellow policymakers signaled that rate hikes would continue. Projections released at last week’s meeting indicate that the Fed’s benchmark short-term borrowing rate will rise to 3.4% by the end of this year, from its current target range of 1 .5% to 1.75%.
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