The chairman of the US Federal Reserve said they will continue to raise interest rates until inflation slows.

US Federal Reserve Chairman Jerome Powell (REUTERS/Elizabeth Frantz)
US Federal Reserve Chairman Jerome Powell (REUTERS/Elizabeth Frantz)

The US economy is strong, but faces an “uncertain” global environment and could see more inflation “surprises”said on Wednesday the chairman of the Federal Reserve, Jerome Powell.

In the first of two days of testimony before Congress, Powell emphasized again that the Fed understands the difficulties caused by rising prices. and is committed to reducing inflation, which has reached a 40-year high.

The US central bank announced last week the most aggressive interest rate hike in nearly 30 years and promised to take more action to combat rising prices, with gasoline and food costs skyrocketing and millions of Americans struggling to make ends meet.

But as they increase fears that the rapid tightening of financial conditions could go too far and push the world’s largest economy into recessionPowell insisted that the The US economy “is very strong and well positioned to handle tighter monetary policy.”

“Obviously, inflation has surprised to the upside over the past year, and more surprises could be expected”the Fed chief told the Senate Banking Committee in his semi-annual appearance.

The formulators of policies “will have to be agile” given that the economy “often evolves in unexpected ways,” he said.

Last week’s whopping 0.75 percentage point rise in the benchmark interest rate was the third since March, raising the benchmark rate a total of 1.5 points. Y Powell at the time said more such increases were likely in July.

A woman in a supermarket in Los Angeles, California (REUTERS / Lucy Nicholson)
A woman in a supermarket in Los Angeles, California (REUTERS / Lucy Nicholson)

The Fed faces intense criticism that it was too slow to react to the changing economywhich benefited from an avalanche of stimulus from the federal government.

Powell made no explicit mention of recession risks in his opening remarks, but he was sure senators would grill him on the prospect.

“Essential’ to curb inflation”

In addition to easing the financial pressure on American families, especially those with fewer resources, the chief of The Fed said controlling inflation was “essential … if we are to have a sustained period of strong labor market conditions that benefit everyone.”

The US economy quickly recovered from the Covid-19 pandemic, helped by strong consumer spending, and has continued to creating jobs at a fast pacewith an average of 408,000 in the last three months.

The Unemployment is near a 50-year low.

But surging demand for homes, cars and other goods has collided with transportation and supply chains in parts of the world where Covid-19 has remained, and continues to be, a challenge.

FILE IMAGE.  The exterior of the Federal Reserve Building, in Washington, U.S., June 14, 2022. REUTERS/Sarah Silbiger
FILE IMAGE. The exterior of the Federal Reserve Building, in Washington, U.S., June 14, 2022. REUTERS/Sarah Silbiger

It’s fueled inflation, which worsened dramatically after Russia invaded Ukraine in late February and Western nations imposed harsh sanctions on Moscow, sending food and fuel prices skyrocketing.

Powell said that the consequences of conflict in Ukraine “They are creating additional upward pressure on inflation.”

Also, “Covid-19-related lockdowns in China are likely to exacerbate ongoing supply chain disruptions.”

But he noted that the problem is not unique to the United States.

“Over the past year, inflation has also increased rapidly in many foreign economies”said.

Indeed, many of the major central banks have joined the Fed in beginning to tighten monetary policy, with the notable exception of the Bank of Japan.

Powell pointed out the signs that the rising rates is having an impactas business investment slows and “Activity in the housing sector appears to be weakening, in part reflecting higher mortgage rates.”

Average home loan rates rose to 5.23 percent in May for a 30-year fixed-rate mortgage from 4.98 percent in April, according to Freddie Mac, while the Median home price topped $400,000 for the first time.

“The tightening of financial conditions that we have seen in recent months should continue to moderate growth and help better balance demand with supply”Powell said.

(With information from AFP)

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