Federal Reserve Chair Jerome Powell signaled on Wednesday that the central bank will continue raising interest rates, even as there are growing concerns about a potential recession. He did not rule out that scenario, underscoring that the Fed remains vigilant about steering the economy toward stable prices while avoiding a hard landing.
In testimony before a U.S. Senate committee, Powell reiterated that achieving a soft landing—where inflation cools without a sharp slowdown in economic activity—remains the Fed’s objective. He acknowledged that this path is becoming more challenging in light of recent months’ developments.
The Fed chief noted that events such as the war in Ukraine and persistent global supply disruptions have intensified difficulties in bringing inflation back to target. He stressed that the opposite outcome—a failure to restore price stability—would carry unacceptable costs for the U.S. economy, and that a sustained period of price stability is essential for healthy growth.
Powell stressed the imperative to return inflation to the 2% goal and warned that the country cannot afford to let higher prices become the norm. He described the Fed’s actions as closely tied to the goal of lowering inflation, particularly at a moment when price pressures have been elevated for an extended period.
To accelerate progress, the Fed has moved decisively and indicated it possesses both the tools and the resolve to rein in inflation. Powell emphasized that keeping inflation low is crucial for maintaining a strong labor market with broad-based benefits across households and regions.
The central bank’s recent decision to raise rates by 75 basis points marked a step not seen in nearly three decades, aimed at cooling demand and rebalancing supply dynamics in the face of 8.6% inflation driven by supply chain constraints, the Ukraine conflict, and post-pandemic fiscal stimulus-induced savings. Powell suggested that further tightening could be warranted at the July policy meeting on July 26-27, potentially involving a 0.5 or 0.75 percentage point increase.
Raising rates remains the principal instrument for tempering demand and guiding prices toward a more sustainable path over time. While this approach can dampen activity, Powell argued that it is a necessary medicine to prevent inflation from becoming ingrained and to avoid long‑term economic scarring.
The Fed has repeatedly stated that its aim is not to provoke a recession, yet the commitment to lowering prices is described as unwavering and bold. This posture reflects a willingness to accept short-term risk in order to curb inflationary pressures and restore price discipline across the economy.
In its most recent economic projections, released in mid-June, the Fed forecast that inflation would likely run around 5.2% for 2022, surpassing March expectations, before easing toward more typical levels in subsequent years. The outlook called for inflation at about 2.6% in 2023 and 2.2% in 2024, with modest growth expected this year and a gradual pickup in 2024.
On growth, the Fed projected the U.S. economy would expand by about 1.7% in the current year, with a slight uptick to roughly 1.9% in 2024. These figures reflect the bank’s dual mandate: cooling inflation while fostering a pace of growth compatible with a healthy labor market and broadly shared prosperity.