Inflation has been the topic on everyone’s lips for the past couple of months as many fear it would lead to a recession, but Federal Reserve chairman Jerome Powell believes that while there’s a possibility of it happening, it is most unlikely.
A week after the Fed ordered the largest interest rate increase since 1994, Powell addressed the Senate Banking Committee amid the growing pressure on the bank to combat inflation.
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“We need to get inflation back down to 2%,” the chairman told lawmakers. “We’re using our tools to do that. And the public should believe that we will get inflation back down to 2% over time.”
Sen. Elizabeth Warren, D-Mass., warned that they could see an abrupt increase in borrowing costs, which could produce a surge in layoffs while doing little to fix the supply shocks that drove up the price of gasoline and groceries.
“You know what’s worse than high inflation and low unemployment?” Warren asked. “It’s high inflation and a recession with millions of people out of work. I hope you’ll reconsider that, before you drive this economy off a cliff.”
Powell reiterated that the economy is at an advantage to endure higher interest rates, but he also acknowledged that the Russian invasion and lingering supply-chain problems add to the risk of an economic slowdown.
“It’s certainly a possibility. It’s not our intended outcome at all, but it’s certainly a possibility,” said Powell. “We’re not trying to provoke – and I don’t think that we will need to provoke – a recession. But we do think it’s absolutely essential that we restore price stability, really for the benefit of the labor market as much as anything else.”
Although many are anticipating recessions, Powell argues that predicting them is difficult, saying he doesn’t see the risks to be particularly high.
“The U.S. economy for now is strong. Spending is strong. Consumers are in good shape. Businesses are in good shape,” reassured Powell. “Monetary policy is famously a blunt tool. And there’s risk that weaker outcomes are certainly possible. But they’re not our intent.”
Due to the rising mortgage rates, some Republicans on the committee are blaming the Fed for waiting too long to crack down on inflation, blaming the $1.9 trillion dollar relief bill last year for fueling consumer demand.
Jerome Powell and other officials admit they misjudged the severity and staying power of inflation. But the Fed chairman reassured people of his determination to bring prices under control.
“We have the tools and the resolve and hopefully the judgment to accomplish that task,” said Powell.
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