Federal Reserve Chairman pledges to control inflation

Jerome H. Powell, the Federal Reserve president, told senators on Thursday that policymakers were prepared to contain inflation as they...

Jerome H. Powell, the Federal Reserve president, told senators on Thursday that policymakers were prepared to contain inflation as they tried to achieve their goal of price stability – even if it came at an economic cost.

“We’re going to use our tools, and we’re going to get there,” Powell told the Senate Banking Committee.

Mr. Powell pointed out that the Fed is about to raise interest rates by a quarter of a percentage point at its meeting which ends on March 16, and will continue with further rate increases over the coming months. Fed officials also plan to come up with a strategy to reduce their large holdings of government-backed debt, which will raise long-term interest rates.

The series of policy changes will aim to weigh on demand, curbing price rises that are taking place at their fastest pace in 40 years. The Fed is targeting price gains of 2% on average over time, but inflation stood at 6.1% in the year until January.

When asked if the Fed is prepared to do whatever it takes to control inflation — even if it means temporarily hurting the economy, as Paul Volcker did while chairing the Fed in the early 1980s – Mr. Powell said yes.

“I knew Paul Volcker,” he said during his testimony. “I think he was one of the great civil servants of the time – the greatest economic civil servant of the time. I hope history will remember that the answer to your question is yes.

Mr. Volcker’s campaign against double-digit price hikes pushed up unemployment above 10% in the early 1980s, which hurt the economy so badly that wages and prices began to slow.

But central bankers hope they can orchestrate a milder economic downturn this time around.

They react much more quickly to high inflation than did the authorities in the 1960s and 1970s, and the data suggests that consumers and businesses, although aware of inflation, do not yet expect rapid increases year after year. By cooling demand a bit, Fed policies can combine with easing supply chain issues to lower inflation without laying people off.

“Mortgage rates are going to go up, auto loan rates — all those rates that affect consumer buying decisions,” Powell said of how higher rates would work. “Housing prices won’t go up as much, and stock prices won’t go up as much, so people will spend less.”

The goal is to allow factories and businesses to catch up so that buyers no longer compete for a limited supply of goods and services, creating shortages that allow businesses to raise prices without scaring off greedy shoppers.

“What we’re hoping to achieve is get the economy to a level where supply and demand are in sync,” Powell said.

Asked whether the country could be on the cusp of a wage-price spiral, in which wages and inflation feed off each other, Mr Powell struck a cautious tone.

“This is a serious concern, and one that we are monitoring carefully,” he said. He noted that the wage increases had been very rapid – especially for the lowest paid workers – and that their problematic nature would depend on their persistence.

“The big thing we don’t want is for inflation to take root and become perpetuated,” he said. “That is why we are moving forward with our program to raise interest rates and bring inflation under control.”

Mr. Powell stressed that the Fed’s policy plans would be “agile” in response to the uncertainty coming from Ukraine. Economists said the conflict is likely to drive up the prices of gas and other commodities, further increasing inflation – already, oil prices have soared higher. But at the same time, a combination of higher fuel costs and a climate of consumer confidence could dampen economic growth.

But Mr Powell has made it clear, repeatedly, that restoring price gains is essential.

“We need to ensure price stability; we don’t currently,” he added later, calling the central bank “very motivated to get the economy back to a place where we have inflation under control, but also a strong economy and a market. solid work.

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Newsrust - US Top News: Federal Reserve Chairman pledges to control inflation
Federal Reserve Chairman pledges to control inflation
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