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Powell said that the Fed will not step back to keep increasing rates until inflation decreases

Powell said that the Fed will not step back to keep increasing rates

May 19, 2022: -On Tuesday, Federal Reserve Chair Jerome Powell emphasizes his resolve to decrease inflation, saying that he will back interest rate increases until prices start falling back toward a healthy level.

“If that involves moving past broadly understood neutral levels, we won’t hesitate to do that,” the central bank leader told The Wall Street Journal interview.

“We will go until we feel we’re at a place where we can say financial conditions are in an appropriate location, we see inflation coming down.

“There won’t be any hesitation about that,” he further said.

This month, the Fed is increasing benchmark borrowing rates by half a percentage point, the second increase of 2022, as inflation runs nearly a 40-year high.

Powell said following that increase that, similarly, 50 basis point moves were to come at subsequent meetings so long as economic conditions remained identical to where they are now.

On Tuesday, he repeated his commitment to getting inflation closer to the Fed’s 2% target and cautioned that it might not be easy and could come at a 3.6% unemployment rate, over the lowest level since the 1960s.

“You’d still have a strong labor market if unemployment moved up a few ticks,” he said. “I would say there are several plausible paths to have a soft, as I said, softish landing. Our job isn’t to handicap the odds, and it’s to try to achieve that.”

The U.S. economy saw growth contract at a 1.4% speed in the first quarter of 2022 due to ongoing supply-side constraints, the omicron Covid variant’s spread, and the Ukraine war.

Although, the tighter monetary policy adds to concerns about a steeper downturn and has sparked an aggressive sell-off on Wall Street. In addition to the 75 basis points in interest rate hikes, the Fed has halted its monthly bond-buying program, known as quantitative easing. It will start shedding a few of the $9 trillion in assets starting in the coming month.

Powell said he still hopes the Fed can achieve its inflation goals without tanking the economy.

“You’d still have a strong labor market if unemployment moved up a recent tick. There are several plausible paths to having a soft, softish landing. ” He said our job is not to handicap the odds and try to achieve that,” he said.

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