When asked by a member of the Senate Banking Committee if the Fed could raise rates by as much as 100 basis points in a single meeting, Powell said he would never take anything off the table and that the authorities will take whatever steps are necessary to restore price stability.
Powell acknowledged that inflation “surprised” the monetary authorities and warned that there may be “other surprises.”
In a speech before Congress, Powell also assured that the US economy is strong enough “to face a monetary tightening” or upward adjustment of interest rates.
“Obviously, inflation has surprised … over the last year, and more surprises could be expected,” Powell said in his appearance before a Senate committee, at a time when price rises reached a 40-year peak in the United States at 8.6% year-on-year as of May, according to the CPI consumer price index.
He recalled that the Fed raised its reference rates in the last three meetings, which has meant an increase of 1.5 percentage points.
the monetary committee “count on rates continuing to rise”he warned, and the rhythm “It will depend on the economic data.”
The head of the Fed assured that the central bank’s communication will be “as clear as possible”. At its last meeting in mid-June, the monetary committee raised rates by 0.75 percentage point, an increase not seen in almost 28 years.
“We will strive to avoid adding uncertainty to a period that is already extraordinarily difficult and uncertain,” promised. But “In a rapidly changing economic environment, our policy has and will continue to adapt.”
Among the causes of inflation Powell cited “the increase in crude oil prices as a result of Russia’s invasion of Ukraine” and “the covid-19 lockdowns in China”, But Republicans believe the Fed’s monetary policy has been too loose for too long.
The agency kept rates close to zero to boost the economy during the pandemic.
“Inflation has also risen rapidly in many foreign economies,” insisted. On Wednesday it was announced that it was 9.1% year-on-year in May in the UK.
Powell described a still “very strong” US economy. “Indicators suggest real gross domestic product growth accelerated this quarter, and consumer spending remained strong,” he said, after GDP contracted in the first quarter in annual projection, the preferred measure in the United States, which compares GDP with the previous quarter and, based on conditions at the time of measurement, projects the estimated growth in 12 months.
In the comparison with the first quarter of 2021, instead, the GDP registered an expansion of 3.5%. And quarter on quarter, a contraction of 0.4% is observed between the first quarter of 2022 and the last quarter of 2021.
Business investment is down and the real estate market is also not going through its best moment, “partly reflecting higher mortgage rates,” nuanced the head of the Fed. “The tightening of financial conditions … should continue to moderate growth and will help to better balance supply and demand,” he said.
The Federal Reserve chairman acknowledged that a rapid increase in rates could trigger a recession. “It is not at all the desired result but it is certainly a possibility”, rresponded to a congressman concerned about the consequences of the Fed’s monetary policy.
Economic experts increasingly raise the specter of a recession, because the rise in interest rates conditions all credits.
The White House itself is concerned about the risk of recession but at the same time ensures that the foundations of the economy remain solid to face it. “It’s obviously a concern, but the backbone of our economy remains strong,” economic adviser Cecilia Rouse said Tuesday.
Treasury Secretary Janet Yellen said on Sunday that she did not believe a recession was “inevitable”, although she acknowledged that she expects “the economy to slow down” as part of a transition to “slow and stable growth”.
Source: Ambito
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