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Jerome Powell, Fed Chair, Says Recession Is ‘Certainly a Possibility’

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Federal Reserve Chair Jerome H. Powell said central banks may be able to reduce rapid inflation without putting the United States in a painful recession, but quitting it will be achieved. Warned that it was “very difficult”. Recession is “certainly possible”.

“We’re not trying to provoke, and I don’t think we need to trigger a recession,” Powell said during a testimony to the Senate Banking Commission Wednesday. “But above all else, we believe it is absolutely essential to restore price stability for the benefit of the labor market.”

Powell returns to Capitol Hill Testify again on ThursdayFaced with difficult moments. Inflation, measured by the CPI, was 8.6%, the fastest pace in more than 40 years, and accelerated again in May thanks to soaring gas prices and airfare. The economy remains strong and the unemployment rate has historically been low at 3.6%, but the sharp rise in prices has led the Fed to adjust its policies at an increasingly rapid pace to cool demand.

The Federal Reserve raised the policy rate by three-quarters percentage points last week. This is the biggest move since 1994, with a quarter point increase in March and a half point increase in May. Escalation occurs as central banks become more and more concerned about the spread of inflation, affecting the prices of goods and services across the economy and becoming more concerned. Consumer expectations I started sneaking up for future price increases. If people expect faster inflation, they may demand higher wages to cover costs, encourage employers to charge more due to rising labor costs, and start an inflation cycle. ..

“We understand the whole story and are now using our tools to tackle the problem quite vigorously,” Powell said in his testimony. “Price stability is really the foundation of the economy.”

The Fed’s policies to curb demand and curb inflation are expected to hurt the economy. Central bankers themselves predict that unemployment will rise and growth will slow as higher interest rates are implemented, making mortgages, credit card debt, and business loans more expensive.

“I think you see continuous progress, rapid progress towards higher rates,” Powell said.

Wall Street investors are worried that central banks will start a recession to reduce inflation. Economist warned The unemployment rate may need to rise significantly to reduce demand enough to return inflation to a restrained state. Households are afraid of the future Consumer trust It is plummeting. Fed officials have repeatedly stated that they are trying to stabilize prices without causing a recession, but admit that it is difficult to achieve.

Achieving this goal has been “significantly difficult due to the events of the past few months,” Powell said, citing the closure of China and the disruption of supply due to the Ukrainian war, which further pushed up prices.

Still, he said, central banks need to do what they can to curb inflation. Another risk is that the Fed will not restore price stability, high inflation will settle in the economy and more hurt low-income earners. Someone else.

“I’m trying to slow demand growth. I don’t know that demand really has to go down. This will be a recession,” Powell said. He later added, “This is very high inflation and is hurting everyone. We need to work and reduce inflation to 2 percent.”

The looming financial distress has caused problems for many politicians, especially powerful Democrats, whom Powell testified earlier this week. Voter approval President Biden sank under the weight of inflation, which the government regularly calls a top priority.

In fact, Mr Biden called on Congress on Wednesday to plan to temporarily suspend the federal gas tax, an effort to delay fuel price hikes.It may turn out difficult to go through such measures, and economists generally dismissed the policy as follows: Impact is limitedAs is the case with most measures to combat inflation that the government was able to develop.

The Fed, which is politically independent, is the country’s main answer to rapidly rising prices. The policy may be painful, but it is isolated from the election cycle so that central bankers can make tough short-term decisions to put the economy on a more stable long-term trajectory.

However, central bank policies are not perfectly aligned at this time. While that price acts to slow demand, many of the factors driving inflation today are related to supply. China’s attempts to contain the coronavirus delayed factory production, soared gas and food costs after Russia invaded Ukraine, and a pandemic left some parts and commodities out of stock.

“Inflation has clearly been surprised upwards over the past year, and further surprises may await,” Powell said Wednesday.

The White House has emphasized the Fed’s central role in the fight against inflation, but some Democratic senators, including Elizabeth Warren of Massachusetts, have said that damaging the economy is the solution to today’s sharp rise in prices. I wondered if there was one. Even when the White House’s more precise efforts struggled to gain traction, some prompted a more coordinated approach.

Powell acknowledges that fluctuations in interest rates will not lower food and fuel prices, but will increase borrowing spending, lower stock and other asset prices, and impact the economy through global currency adjustments. rice field.

“The idea is to ease demand and improve the balance with supply,” Powell said.

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