Powell Says Some Pain Could be Involved to Fan Down Inflation

Federal Reserve Chair Jerome Powell said Tuesday that the central bank will continue to raise short-term interest rates — which will likely slow economic activity — until there is “clear and convincing evidence” that inflation is coming down.

“We will go to that point and there won’t be any hesitation about that,” Powell said at a Wall Street Journal event.

The Fed’s preferred measure of inflation showed prices rising by 6.6% on a yearly basis in March, well above the central bank’s target of 2%.

“There could be some pain involved in restoring price stability, but we think we can sustain a strong labor market,” Powell said. The unemployment rate was at a historically low 3.6% in April.

The Fed in March of this year to raised rates by 0.25% and later in May, the Fed raised rates by 0.50% — its largest move in a single meeting since May 2000.

Powell said Tuesday that there was “broad support” for additional 0.50% moves in the next two policy-setting meetings. Other Fed officials (like his colleagues in Cleveland, Atlanta, and St. Louis) have similarly voiced their support for that plan, which would lift the federal funds rate somewhere between 1.75% and 2.00% by the end of July.

“That’s short of a prediction or a statement of forward guidance that we’re actually going to do this,” Powell cautioned. The Fed chief said the Russian invasion of Ukraine and the economic shutdowns in China could further cloud the picture on inflation.

Powell also pledged to consider “moving more aggressively” on rates if inflation does not abate quickly enough. But he also said the Fed could consider moving at a slower pace if inflation fades faster than expected.

The goal: to pull pandemic-era stimulus without triggering a wave of job losses and an abrupt drop in economic activity. For the Fed, a “soft landing” would be achieving lower inflation with only a modest notch down in U.S. economic growth and an unemployment rate that rises only a few ticks.

Powell had said earlier in the month that he felt there was a “good chance to have a soft — or soft-ish” outcome as it hikes rates. On Tuesday, the Fed chair used an airplane analogy to illustrate his point.

“Sometimes the landing is just perfect, sometimes it’s just a little bumpy. It’s still a good landing, you don’t even notice it,” Powell said.