In remarks framed by the war in Ukraine, Powell told the House Financial Services Committee that the economic outlook had become “very uncertain” and that the Fed wanted to “proceed carefully” while changing monetary policy in a situation already complicated.
“We will proceed carefully as we learn more about the economic implications of the Ukraine war,” Powell said.
“We expect inflation to peak and start to decline this year. To the extent that it is higher or persistently higher … we would be prepared to act more aggressively by raising the fed funds rate by more than 25 percent.” basic points in a meeting or meetings”.
The Fed has kept its benchmark overnight rate near zero since it cut it in 2020 to prop up the economy amid the shock of the coronavirus pandemic.
The impact of the coronavirus pandemic on the economy appears to be easing, he said, hiring remains strong, and inflation has emerged as the main risk.
Inflation “is now well above our long-term target of 2%. Demand is strong, and bottlenecks and supply constraints are limiting how quickly production can respond,” the chief said. of the Fed
He added that those supply disruptions had been “bigger and longer-lasting than anticipated,” and reaffirmed the Fed’s promise to be as tight as necessary to get prices back on track.
Although some of those inflationary pressures are expected to abate over the course of the year, “we are alert to the risks of potential additional upward pressures… We will use our tools as appropriate to prevent higher inflation from taking hold.”
However, Powell also recognized the new complexity facing the Fed from developments in Europe, which have the potential to both increase price pressures and undermine growth.
“The short-term effects on the US economy of the invasion of Ukraine, the ongoing war, the sanctions and the events ahead remain highly uncertain,” he said. “We will have to be agile in responding to incoming data and evolving outlooks.”
Source: Ambito
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