Possible that rates will rise to level that causes recession: Fed's Powell

His remarks underscore the challenge facing the central bank as it raises interest rates at the most rapid clip since the 1980s to slow the economy and cool inflation

US Federal Reserve chair Jerme Powell
US Federal Reserve chair Jerome Powell (Photo: Bloomberg)
Agencies
2 min read Last Updated : Jun 23 2022 | 12:16 AM IST
Federal Reserve Chairman Jerome Powell said the central bank’s battle against inflation could lead it to raise interest rates high enough to cause an economic downturn.

“It’s certainly a possibility,” Powell said Wednesday during the first of two days of congressional hearings. “We are not trying to provoke and do not think we will need to provoke a recession, but we do think it’s absolutely essential” to bring down inflation, which is running at a 40-year high.

His remarks underscore the challenge facing the central bank as it raises interest rates at the most rapid clip since the 1980s to slow the economy and cool inflation.

Rising fuel costs and supply-chain disruptions from Russia’s war against Ukraine have sent prices up in recent months. Those pressures have added to already-high inflation as demand surged last year from the reopening of the economy and aggressive government stimulus. The central bank is seeking to engineer a so-called soft landing by cooling the economy’s growth enough to lower inflation, but without causing a downturn.

“The events of the last few months around the world have made it more difficult for us to achieve what we want,” Mr. Powell told the Senate Banking Committee on Wednesday. “We’ve never said it was going to be easy or straightforward.”

Powell said the Fed plans to continue raising interest rates until it sees clear proof that inflation is slowing to the central bank’s 2% target.

US faces elevated inflation risk: Fed

The US economy faces elevated risks of a recession over the next one to two years due to rising imbalances in markets for goods and services, including labor, according to a new research paper from a Federal Reserve economist. The paper finds slightly more than 50% chance of inflation in the next four quarters.

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Topics :United StatesUS Federal ReserveJerome Powell

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