Jerome Powell, chairman of the United States Federal Reserve (Fed), said this Wednesday, The institution will continue its policy of increasing interest rates despite the risk of the country entering a recession and has not ruled out this scenario.
Speaking before the U.S. Senate committee, Powell said, ‘soft landing’ of economy remains Fed’s target (i.e., a drop in inflation that minimizes economic activity), but he acknowledged that this scenario is increasingly “harder.”
“This target has become significantly more difficult due to events that have occurred in recent months.Powell responded to one of the senators’ questions by referring to the war in Ukraine and ongoing global supply problems.
The head of the US central bank, however, said that the opposite scenario is the opposite scenario, where the Fed is unable to return to price stability. inflation is becoming permanent, something that, in his view, the US economy cannot afford.
“We cannot fail in this task. We must go back to 2% inflation,” he assured. Powell, the organization he led “Strongly linked” to falling prices in the country, At a time when inflation is at levels not seen in 40 years.
The head of the US central bank also moving “fast” to achieve this goal, and that it has the means and the will to restore price stability.
“It is very important that we low inflation “If we want to have a period of sustainable conditions for a strong labor market that benefits everyone,” he said.
The Fed announced last week 75 basis point rate hike, Something that hasn’t happened in 28 years to combat 8.6% inflation triggered by supply chain problems, the war in Ukraine, and consumer savings from fiscal stimulus during the pandemic.
On this occasion, Powell has already pointed out Another 0.5 or 0.75 percentage point hike is likely to be approved at the monetary policy meeting on 26-27 July.
Raising interest rates is the main tool the Fed can use to try this. reducing demand for goods and services and recalibrating supply, this in the long run will help to ease the tension on prices and reduce them.
Again, It is an operation that carries great risks, because the excessive contraction of the available money can panic both companies and consumers, reduce the demand for goods and services and create an economic recession.
The Fed insisted it was not trying to create a recession under any circumstances, but The “unconditional” commitment to lower prices shows the central bank’s willingness to take huge risks to ease inflationary pressures.
In its latest economic forecast, which was released in mid-June, the central bank predicts that the US will reach 2022. annual inflation 5.2% (significantly above the 4.3% projected in March), but will return to more normal figures in the following years, with 2.6% in 2023 and 2.2% in 2024.
Regarding the growth of the economy,Fed expects US to grow 1.7% A percentage that will increase slightly to 1.9% in 2024, both this year and next year.