On Tuesday, Federal Reserve Chair Jerome Powell reiterated his resolve to get inflation down, saying he will back interest rate increases until the prices of goods start going back down towards a level considered healthy.
“If that involves moving past broadly understood levels of neutral we won’t hesitate to do that,” Powell told The Wall Street Journal in an interview. “We will go until we feel we’re at a place where we can say financial conditions are in an appropriate place, we see inflation coming down.
“We’ll go to that point. There won’t be any hesitation about that,” he went on to say.
Earlier this month, the benchmark borrowing rates were increased by the Fed by half a percentage point. It serves as the second increase of the year as inflation plays around a 40-year high.
According to Powell, after that increase, those similar 50 basis point activities were to possibly come at ensuing meetings as long as economic conditions were similar to where they currently are.
Powell: Reaching Inflation Goals Could Come at a Cost
On Tuesday, the Fed’s chair repeated his resolve in getting inflation closer to the 2% target. He also warned that the feat might not be easy to achieve. He also said it might come at the expense of a 3.6% unemployment rate, which is just over the lowest level since the late 60s.
“You’d still have a strong labor market if unemployment were to move up a few ticks,” Powell mentioned. “I would say there are a number of plausible paths to have a soft as I said softish landing. Our job isn’t to handicap the odds, it’s to try to achieve that.”
*FED CHAIR POWELL: WANT CLEAR AND CONVINCING EVIDENCE ON SLOWER INFLATION
*POWELL: WON'T HESITATE TO RAISE RATES ABOVE NEUTRAL IF NEEDED pic.twitter.com/SNp5ptYTpW
— Investing.com (@Investingcom) May 17, 2022
The country’s economy experienced a growth contract rate of a 1.4% pace in Q1 of 2022. This comes largely due to the ongoing supply chain troubles, the spread of COVID’s omicron variant, and the Ukraine-Russia war.
However, having a tighter monetary policy becomes one of the concerns regarding a steeper downturn, and it has also caused an aggressive sell-off on Wall Street. Apart from the interest rate hikes worth 75 basis points, the Fed has also stopped its monthly bond-buying program, which people knew as quantitative easing. It will start dropping some of the $9 trillion worth of assets it has gained starting in June.
According to Powell, he still hopes the Fed can reach its goals when it comes to inflation without causing the economy to tank.
“You’d still have a strong labor market if unemployment were to move up a few ticks. I would say there are a number of plausible paths to have a soft as I said softish landing. Our job isn’t to handicap the odds, it’s to try to achieve that,” he said.
He went on to mention that “there could be some pain involved to restoring price stability” but stated that the labor market must remain strong, coming with low unemployment rates and higher wages.