Will have to raise interest rates if inflation doesn’t slow: Fed chief

Jerome Powell, chairman of the US Federal Reserve, told a US Senate committee that the central bank will be forced to become more aggressive in raising short-term interest rates if inflation does not slow down.

“If we see inflation persist at high levels, longer than expected, if we need to raise interest rates further over time, then we will,” Powell said at a Senate Committee hearing banks, Yahoo! Finance.

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The stakes are higher than ever for the Fed this year, with prices up nearly 7% year on year. The Fed has spent the last year and more trying to figure out how much of inflation is due to increased demand and how much is due to limited supply caused by COVID.

Powell said both appear to be factors behind high inflation, while acknowledging demand is “very strong” at the moment. He said the Fed can do something about demand, but it is powerless to act against supply. “But it’s really a combination of the two, ”said Powell.

Observers say the Fed is moving quickly to reverse the effects of lax policies carried out during the worst phase of the pandemic.

In addition to keeping interest rates at zero, the central bank collected trillions of dollars in US Treasuries and agency mortgage-backed securities. The so-called quantitative easing program has served as a messaging device to markets on its intention to maintain “accommodative” policies, Yahoo! Finance.

Faced with ever higher inflation, sources said the Fed now plans to end the program earlier than expected – it was originally scheduled to end in March. Once that’s done, the Fed will consider raising interest rates, observers said.

“It is really time for us to start moving away from these emergency pandemic parameters and back to a more normal level. It really shouldn’t have negative effects on the job market, ”said Powell.

(Edited by : Vijay Anand)


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