The Federal Reserve Chairman Jerome Powell believes that while there’s a possibility of inflation leading to recession, it is most unlikely.
Powell addressed the Senate Banking Committee, which was facing mounting pressure from banks to combat inflation. One week ago, the Federal Reserve order an unprecedent interest rate hike that was last see in 1994.
“We need to get inflation back down to 2%,” the chairman told lawmakers. “We’re using our tools to do that. And the public should believe that we will get inflation back down to 2% over time.”
Sen. Elizabeth Warren warned that we could see an abrupt increase in borrowing costs, which would produce a surge of layoffs while doing little to fix the supply shocks behind high gasoline and grocery prices.
“You know what’s worse than high inflation and low unemployment?” Warren asked. “It’s high inflation and a recession with millions of people out of work. I hope you’ll reconsider that, before you drive this economy off a cliff.”
Powell admit that the economy is at a disadvantage with higher interest rates, but he also say there are risks of an economic slowdown because of the Russian invasion and supply chain problems.
“It’s certainly a possibility. It’s not our study outcome at all, but it’s certainly a possibility,” say Powell. “We’re not trying to provoke – and I don’t think that we will need to provoke – a recession. But we do think it’s absolutely essential that we restore price stability, really for the benefit of the labor market as much as anything else.”
Despite the number of people anticipating recessions, Powell argues that predicting recessions is difficult. He says he doesn’t see the risks to be particularly high at this time.
“The U.S. economy for now is strong. Spending is strong. Consumers are in good shape. Businesses are in good shape,” repass Powell. “Monetary policy is famously a blunt tool. And there’s risk that weaker outcomes are certainly possible. But they’re not our intent.”
Some Republicans are blaming the Fed for waiting too long and letting inflation get out of control. They say this is why mortgage rates rose over recent months, which has hurt many Americans’ wallets along with the $1.9 trillion dollar relief bill last year for fueling consumer demand.
Jerome Powell, the Chairman of the Federal Reserve, admit that they misjudge how severe inflation would be. But despite this mistake, he is still commit to bringing prices under control and ensuring economic growth continues as normal.
“We have the tools and the resolve and hopefully the judgment to accomplish that task,” said Powell.