Powell claims that the fed does not want to cause a recession

Wednesday, June 22, 2022
author picture Mia Chevalier
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Federal Reserve Chair Jerome Powell Wants Price Stability

Federal Reserve Chair Jerome Powell has admitted that the central bank has misjudged inflation‚ but he insists on bringing prices under control to maintain price stability. He used a radio interview to further amplify his message to the public. In the interview‚ Powell discussed the need for central banks to raise interest rates in order to reduce their $9 trillion balance sheet. However‚ the president of the Federal Reserve is weighing several measures to ensure that prices remain stable.

Jerome Powell is the Chairman of the Federal Reserve Board of Governors and will appear before the Senate Banking Committee‚ Washington‚ on Wednesday‚ June 22‚ 2022. Jerome Powell is the Federal Reserve's chair. He said the central bank could lower inflation quickly without triggering a downturn in the United States. However‚ he warned that it would not be easy and that there are always risks. While testifying before Senate Banking Committee‚ Powell stated that he was not intending to cause a recession and did not believe that he would need to do so. We do believe it is essential to restore price stability for the good of the labor force. Powell will be returning to Capitol Hill on Thursday to give testimony again. This is a difficult moment for him. The Consumer Price Index measures inflation at 8.6% which is the highest rate in over four decades. This pace was accelerated by rising gas prices and increased airfares in May. The economy is strong‚ and the unemployment rate at 3.6% is still historically low. However‚ Fed officials have been forced to change their policy to reduce demand at an increasing pace due to the rapid price rises. Subscribe to The Morning Newsletter from The New York Times Last week's Fed increase in policy interest rates was three-quarters of an inch. This is the biggest move since 1994. It had previously raised the rate by one-quarter-point in March‚ and by half-point last May. This escalation is due to central bankers becoming more concerned by how wide inflation is and the impact it has on the prices of goods‚ services‚ and the economy. They also worry about consumer expectations that future price rises will be greater. People who expect faster inflation may demand higher wages in order to pay for it. This could cause employers to increase labor costs which will set off an inflationary cycle. Powell stated that we do have a full understanding of the issue and are using all our resources to solve it. The foundation of any economy is price stability. Expect the Fed to reduce inflation and restrain demand to harm the economy. The central bankers predict that the unemployment rate will increase and that growth will slow down as higher interest rates are in effect. This will make it more difficult for people to get mortgages and credit cards‚ and will also mean that business loans will be more costly. Powell stated‚ "I think you'll see continued progress and expeditious progress towards higher rates." Wall Street investors worry that the central banks will cause a recession to lower inflation. Economists warn that to reduce demand enough to keep inflation under control‚ unemployment could need to rise. Consumer confidence is falling and households are worried about the future. Officials at the Fed have reiterated their commitment to stabilizing prices and avoiding a recession. However‚ they also admitted that it will not be easy. Powell stated that the recent events have made it more difficult to achieve that goal‚ noting that supply disruptions caused by shutdowns in China‚ and war in Ukraine‚ which has pushed prices higher‚ are just a few examples. He said‚ however‚ that it was important for the central bank to take all measures to limit price rises. The Fed won't restore price stability and the Fed could cause high inflation to become more entrenched. This will be detrimental to low-income individuals the most. I am trying to reduce demand growth. Powell stated that we don't yet know if demand must actually fall‚ and this would lead to a recession. Later‚ he said that the current high level of inflation is hurting everyone and that we must do our jobs to get it down to 2%. Powell‚ particularly those in power‚ is witness to the fact that the economy is still in crisis. The weight of inflation has caused the approval ratings of President Joe Biden to plummet‚ as the administration calls it its number one priority. Biden will call upon Congress to suspend temporarily the federal gasoline tax on Wednesday‚ in an attempt to reduce fuel price inflation. It could be difficult to pass such a measure. Economists generally dismiss that policy‚ which has a limited effect‚ just as most other measures that have been implemented to combat inflation‚ by the Obama administration. The country's primary solution to rising prices is the Fed. It is an independent body. Although its policies are difficult‚ it's not subject to election cycles. This allows central bankers to make hard decisions in the short term and help stabilize the long-term economy. However‚ the policies of the central bank aren't always appropriate for this time. While its rates slow down demand‚ many factors that push inflation higher today are tied to supply. China's efforts to control the coronavirus have reduced factory production. Gas and food prices have shot up after Russia invaded Ukraine. Some parts and goods have been kept out of stock by lingering shipping problems. Powell stated Wednesday that inflation has been surprisingly positive over the last year and could surprise again. The White House emphasizes the central role of the Fed in combating inflation. However‚ some Democratic senators (including Elizabeth Warren from Massachusetts) questioned whether harming the economy is the best solution for today's price rises. A few argued for a more targeted approach to the problem‚ even though more specific efforts by White House have not gained traction. Powell admitted that while rate changes won't bring down fuel or food prices‚ they can affect the economy in that it makes it more expensive to borrow money and pushes down asset and stock prices as well as through currency adjustments. Powell stated that the idea was to reduce demand in order for it to be more balanced with supply. (c) 2022 The New York Times Company