Powell ‘We Understand the Hardship and We Are Strongly Committed'

by Wall Street Rebel - Michael London | 06/22/2022 1:55 PM
Powell ‘We Understand the Hardship and We Are Strongly Committed'

Chairman of the Federal Reserve Jerome Powell has stated that while a U.S. recession is possible, it is not the Fed’s desired outcome during his semiannual hearing before the Senate Banking Committee


Federal Reserve Chair Jerome H. Powell has said that the Fed could be able to slow inflation without triggering a recession in the U.S. economy. He said it would be “extremely tough” to do, and a recession is “definitely a possibility.”

Wednesday, while testifying before the Senate Banking Committee, Mr. Powell said, “We’re not intending to generate, and we don’t believe that we will need to provoke, a recession.” For the sake of the economy as a whole, especially the labor market, we believe that it is imperative to achieve price stability.

Mr. Powell is currently facing a difficult situation. On Thursday, he will return to Capitol Hill to testify. Although the economy is continuing to show signs of strength and the unemployment rate is at a historically low level of 3.6 percent, the Federal Reserve has been forced to make policy adjustments at an ever-increasingly quick pace in an effort to curb consumer demand. As assessed by the Consumer Price Index, inflation is at 8.6 percent, which is the fastest pace in more than four decades. This re-acceleration in inflation occurred in May due to rising gas prices and airfares, and it is the quickest pace in more than four decades.

After raising them by a quarter-point in March and a half-point in May, the Federal Reserve hiked its policy interest rate by a total of three-quarters of a percentage point last week. This was the greatest move made by the Fed since 1994. The escalation comes as central bankers become increasingly concerned about the widespread nature of inflation, which affects the prices of goods and services across the economy. They also worry that consumer expectations for future price increases have begun to creep up. Both of these factors have contributed to the current situation. If people believe inflation will accelerate, they may demand higher wages to pay for rising costs. This may lead businesses to charge higher prices due to the rising cost of labor, which would start a cycle of rising prices.

During his testimony, Mr. Powell stated, “We do recognize the full scope of the problem, and we’re using our tools to address it very vigorously now.” (We realize the full extent of the problem.) “The most important thing for the economy is to maintain price stability.”

It is anticipated that the policies implemented by the Fed to reduce demand and inflation will have a negative impact on the economy.

As the increased rates take effect, it will become more expensive to carry mortgages, credit card debt, and company loans. Central bankers themselves estimate that this would result in an increase in unemployment and a slowdown in economic growth.

Mr. Powell stated, “I think you will see continuing movement, rapid progress toward higher rates.” “I think what you will see is what I call continuous progress.”

Consumer confidence is at an all-time low, and households are increasingly anxious about the future. Investors on Wall Street are concerned that the central bank will trigger a recession in its attempt to bring inflation down, and economists have warned that unemployment rates may need to climb significantly in order to bring demand down to a level that is sufficient to bring inflation back under control. Officials from the Federal Reserve have stated on multiple occasions that they are working to maintain price stability without triggering a recession; nevertheless, they have also acknowledged that accomplishing this goal will be challenging.

According to Mr. Powell, accomplishing this objective “has been made significantly more challenging by the events that have transpired over the past few months.” He cited the supply disruptions that have resulted from shutdowns in China and the war in Ukraine, which have caused prices to rise even further.

Nevertheless, he stated that the central bank should do everything in its power to prevent further increases in prices because there is also the possibility that the Fed will fail to restore price stability and that high inflation will become ingrained in the economy, which will be particularly detrimental to those with lower incomes.

Mr. Powell stated, “I’m attempting to limit demand growth; we don’t know if demand has to fall down, which would be a recession.”

Later, he elaborated by saying, “this is extremely high inflation, and it’s harming everybody, and we need to do our job and bring inflation back down to 2 percent.” He described the current rate of inflation as “quite high.”

Many of the politicians that Mr. Powell is testifying in front of this week, notably the Democrats who are currently in control, are in trouble due to the impending economic suffering. The approval rating of President Biden has decreased as a direct result of the administration’s focus on inflation, which is sometimes referred to as its main priority.

Mr. Biden intended to make his request to temporarily suspend the federal gas tax on Wednesday in the hopes of bringing down the skyrocketing cost of gasoline. The passage of such legislation could be difficult, and economists have generally discounted that policy as having a limited influence. Economists also dismiss as having a limited impact the majority of the initiatives the administration has been able to roll out to combat inflation.

The United States’ primary response to rapidly increasing prices is provided by the Federal Reserve, which is politically apolitical. Its policies may be unpleasant, but it is shielded from the influence of election cycles, which enables central bankers to make difficult decisions in the short term to put the economy on a more stable track over the long term.

However, the central bank’s policies are not entirely appropriate for the current environment. Its interest rates are designed to dampen demand. Still, many of the variables that are driving inflation higher today are related to supply: China’s efforts to contain the coronavirus have slowed factory production, gas and food prices have increased as a result of Russia’s invasion of Ukraine, and ongoing shipping challenges that began during the epidemic have hindered some parts and supplies from being in stock.

Mr. Powell stated on Wednesday that inflation has surprised the upside over the past year and that further surprises could be in store.

Even though the White House has strongly emphasized the Federal Reserve’s central role in the fight against inflation, a number of Democratic senators, including Elizabeth Warren of Massachusetts, have questioned whether or not harming the economy is the appropriate response to the recent surge in inflation. Even while the attempts made by the White House, to be more specific, are having difficulty gaining traction, some people have advocated for a more individualized strategy.

Mr. Powell acknowledged that changes in interest rates would not result in a decrease in the price of food or fuel; however, he did say that these changes would affect the economy by making it more expensive to spend with borrowed money, lowering the price of stocks and other assets, and adjusting global currency exchange rates.

Mr. Powell states, “The objective is to limit demand so that it may be better balanced with supply.” This is what the plan is all about.


                                Fed Chair Jerome Powell testifies before Senate Banking Committee on monetary policy 




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