May 26, 2022

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Jay Powell warns that taming US inflation will cause 'some pain'

Jay Powell warns that taming US inflation will cause ‘some pain’

Federal Reserve Chairman Jay Powell warned that lowering inflation to the US central bank’s 2 per cent target would cause “some pain”, adding that tackling higher prices without causing a recession could depend on factors beyond his control.

Powell’s comments, which constitute some of his most bearish comments to date, come amid significant uncertainty over the economic outlook as the Federal Reserve begins what is likely to be the fastest monetary policy tightening in years.

The central bank has high rates By 0.75 percentage points from the near-zero levels that have been in place since the early days of the coronavirus pandemic, after it implemented a half-point increase just last week.

These moves are part of its plans to “urgently” shift policy to a neutral environment that no longer stimulates demand. The central bank will also start reducing its $9 trillion balance sheet next month.

at Interview With Marketplace on Thursday, Powell reiterated the Fed’s commitment to lower inflation and emphasized the challenge of doing so without causing job losses and a potential recession.

“The process of bringing inflation down to 2 percent will also involve some pain, but at the end of the day it will be even more painful if we fail to deal with it and inflation is entrenched in the economy at high levels,” he said. ..

“The question of whether or not we can do a soft landing may actually depend on factors that we don’t control,” Powell added. “But we must control what can be controlled…”There is work to be done on demand.”

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The Fed is expected to introduce at least two additional rises in the half-point rate in June and July, and maintain that pace at its September meeting. After this point, moderate increases are expected to return to a quarter point. By the end of the year, traders estimate that the benchmark policy rate will rise to about 2.7 percent.

Powell sought to make clear that the Fed would be willing to raise rates by 0.75 percentage points at some point, after saying last week during a news conference that the central bank was “not seriously considering” it.

“If things go better than we expect, we’re willing to do a little more,” he said. “If they come worse than we expected, we’re willing to do more.”

Powell’s comments were published just hours after the Senate voted overwhelmingly to confirm him for a second term as president, capping a series of historic votes that reshaped the central bank’s upper echelon.

Powell — who was promoted to Fed chair by Donald Trump in 2017 after serving as governor in 2012 and once served as a top Treasury official under George HW Bush — received 80 votes in support, while 19 Senator against him.

Lisa Cook, professor of economics and international relations at Michigan State University, and Philip Jefferson, professor of economics at Davidson College, were also confirmed by the Senate this week to fill two vacancies on the Board of Governors.

On Thursday, Powell also defended the Fed’s actions so far, but acknowledged that an early start would have been more appropriate.

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“Maybe it would be better for us to raise interest rates soon,” he said. “I’m not sure how much of a difference it would have made, but we have to make real-time decisions, based on what we know then, and we’ve done our best.”