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Powell Says the Fed Wil Find Price Stability in a New Economy

Federal Reserve chairman Jerome H. Powell said it was unclear whether the global pressures that kept price increases slow and steady for years before the pandemic would ever return — and underlined that it was critical for the central bank to stabilize prices in a new and more disrupted world.

“We have been through a period of disinflationary forces around the world,” Mr Powell said Wednesday in a panel alongside the heads of the European Central Bank and the Bank of England. “Since the pandemic, we’ve been living in a world where the economy is driven by very different forces, and we know that — what we don’t know is if we’re going to go back to something more similar, or a bit like we had before. ”

He added: “We suspect it will be some kind of blend.”

The Fed chairman said the job of the central bank was to find price stability and maximum employment in the new economic situation.

Inflation is high in many developed economies, supported by rapidly rising gas prices, high food costs and supply chain problems that started early in the pandemic and have accelerated since then. Part of inflation in the United States is driven by strong underlying domestic demand: apartment rents are rising sharply, hotel room prices have risen a lot and a variety of services have become more expensive. But those shared global problems are also driving much of the recent price hikes.

While inflation in the United States is at its fastest pace in four decades, Fed policymakers have quickly raised interest rates to try to bring them back under control. three quarters point in June. Central bankers have indicated they want to raise interest rates well over 3 percentcompared to their current 1.5 to 1.75 percent rangeat the end of the year.

“The purpose of that is to slow growth so supply has a chance to catch up,” Powell said Wednesday. “It’s a necessary adjustment that has to happen.”

The Fed chairman said that “demand and supply are currently out of balance in many parts of the US economy,” including the job market.

The unemployment rate has fallen rapidly from double-digit levels in 2020 to 3.6 percent, nearly the lowest level in half a century, and there are now nearly two job openings for every job applicant in the United States. Fed officials hoped that given that underlying strength, they might be able to slow the economy and cool demand without sending the economy into a painful recession.

But central bankers, including Mr. Powell, have emphasized that achieving that optimistic outcome has become more challenging.

“We don’t have precision instruments,” acknowledged Mr. Powell on Wednesday, adding that “the events of the past few months have made it considerably more challenging, especially thinking of the war in Ukraine, which contributed immensely to inflationary pressures.”

“It’s gotten harder, the trails have gotten narrower,” said Mr. Powell on a so-called soft landing. “Yet that is our goal.”

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