The Federal Reserve Chairman Jerome Powell told the congressional lawmakers yesterday that the central bank was committed to bringing inflation down, but added that it would be difficult to achieve a soft landing.
“At the Fed, we understand the hardship high inflation is causing. We are strongly committed to bringing inflation back down, and we are moving expeditiously to do so,” said Powell to the congressional lawmakers. “We have both the tools we need and the resolve it will take to restore price stability on behalf of American families and businesses.”
Still, the Fed’s chair acknowledged that a recession could happen even though the U.S. economy is strong now in his view.
The U.S. economy witnessed a 40-year high inflation in May 2022 as the Consumer Price Index hit 8.6%, crashing hopes that inflation could be on a downtrend after a slight decline in April.
The U.S. central bank has made three rate hikes so far this year, 25 basis points in March, 50bps in May and 75bps in June with another 75bps expected to come in July, followed by a half-percentage-point rise in September. Some expected the Fed to raise 25-50bps in November and 25bps in December. This would take the fed funds rate to a range of 3.25%-3.50% by the end of 2022.
Despite Powell’s comment that he thought the U.S. economy is strong as well as the job market, Senator Elizabeth Warren, warned the chair that gradual rate hikes could tip this economy into recession without stopping inflation.
“You know what’s worse than high inflation and low unemployment is high inflation and a recession with millions of people out of work, and I hope you’ll reconsider that before you drive the economy off a cliff,” she said.
In response to her statement, Powell acknowledged that a recession could happen and added that achieving a soft landing will be difficult. The central bank still set its inflation target at 2%.