Jerome Powell: "there is no guarantee" that the Fed will be able to contain inflation and create job
Federal Reserve Chairman Jerome Powell said there are no guarantees that the central bank will be able to tame rampant inflation without damaging the labor market.
Speaking at the European Central Bank forum in Sintra, Portugal, on Wednesday, Powell reiterated his hope that the Fed will be able to achieve a so-called "soft landing" by raising interest rates just enough to slow down the economy and curb consumer price growth without causing a recession.
"We believe we can do it. This is our goal," he said.
But the Russian escalation related to Ukraine, he said, complicated the task by disrupting trade and raising prices for food, energy and chemicals.
"It's gotten harder," Powell said. The paths have narrowed."
ECB President Christine Lagarde spoke about the main consequences of energy shocks that are spreading around the world, but are acutely felt in Europe due to its dependence on Russian oil and natural gas. She also pointed out the proximity of Europe to the situation in Ukraine.
The ECB and the Fed were in no hurry to recognize the inflationary threat that arose just over a year ago. They believed that the price increase was a temporary result of supply chain disruptions, as the economy bounced back with unexpected speed after a short but devastating recession due to the coronavirus in 2020.
But inflation continued to accelerate. The Fed raised its short-term benchmark rate in March and May and seemed ready for another half-percent hike at the June 14-15 meeting.
The Labor Department then reported that consumer prices rose 8.6% in May, compared with the biggest jump since 1981 a year earlier.
Europe's central bank is lagging behind the Fed, but said it would raise rates in July for the first time in 11 years and then again in September to reach a record 8.1% inflation in the 19 countries using the euro. In a speech on Tuesday opening the ECB forum, Lagarde said that the bank will gradually raise rates, but will retain its ability to suppress inflation if it grows faster than expected.
Economists increasingly fear that higher rates could push the economy into recession.
Powell, however, pointed to strong unemployment in the labor market, which is at a nearly half-century low of 3.6%, and noted that most businesses had significant savings.
"In general," he said, "the US economy has every opportunity to withstand a tighter monetary policy."
Lagarde noted that the same can be said about Europe.
Author: Dan, analyst Сoin-signal.com Club Crypto News
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