FEDS NEXT MEETING DRIVERS
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Such a dynamic would resemble the dreaded “stagflation” of the 1970s. Yet Warren and other Democrats argued that the Fed’s approach carries the risk of weakening the economy and heightening unemployment even as the war in Ukraine keeps gas and food prices high. Instead, Powell said that higher borrowing costs for things like mortgages, auto loans and credit cards, resulting directly from the Fed’s hikes, can help slow consumer demand and inflation pressures.

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Elizabeth Warren, a Democrat from Massachusetts, challenged Powell’s rate hike plans and asked whether they would reduce gas or food prices, some of the highest-profile drivers of inflation. While taking some steps to try to ease the burden of inflation, the president has stressed his belief that the ability to curb inflation rests mainly with the Fed.Īt Wednesday’s hearing, Sen. The public’s anxiety about inflation has weakened Biden’s approval ratings and raised the likelihood of Democratic losses in November.

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Many economists are skeptical that consumers will see the full benefit of a tax holiday on the 18.4 cents-a-gallon gas tax. gas and diesel taxes for three months to reduce the sting of high pump prices, which are averaging nearly $5 a gallon.

Inflation pressures were further worsened by Russia’s invasion of Ukraine.īiden on Wednesday called on Congress to suspend U.S.

Many economists agree that the additional spending contributed to rising prices by magnifying demand even while supply chains were snarled by COVID-related shutdowns and labor shortages were driving up wages. Tillis, like many Republicans, also blamed President Joe Biden’s $1.9 trillion financial stimulus package, approved in March 2021, for being excessively large and exacerbating inflation. “The Fed has largely boxed itself into a menu of purely reactive policy measures,” Tillis said. Thom Tillis of North Carolina, on Wednesday accused Powell of having taken too long to raise rates, saying the Fed’s hikes “are long overdue” and that its benchmark short-term rate should go much higher. This week, Goldman Sachs estimated the likelihood of a recession at 30% over the next year and at 48% over the next two years.Ī senior Republican on the Banking Committee, Sen. That would be its highest level in 15 years.Ĭoncerns are growing that the Fed will end up tightening credit so much as to cause a recession. With inflation at a 40-year high, the Fed’s policymakers also forecast a more accelerated pace of rate hikes this year and next than they had predicted three months ago, with its key rate reaching 3.8% by the end of 2023. Powell’s testimony comes exactly a week after the Fed announced its three-quarters-of-a-point increase, its biggest hike in nearly three decades, to a range of 1.5% to 1.75%. The central bank’s accelerating rate increases - it started with a quarter-point hike in its key short-term rate in March, then a half-point increase in May, then three-quarters of a point last week - has alarmed investors and led to sharp declines in the financial markets. He said the pace of future rate hikes will depend on whether - and how quickly - inflation starts to decline, something the Fed will assess on a “meeting by meeting” basis. “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,” Powell said on the first of two days of testimony as part of the Fed’s semiannual report to Congress.

Powell stressed that the Fed’s primary goal is to reduce inflation but said he still hopes to achieve a “soft landing” - a reduction in inflation and a slowdown in growth without triggering a recession and high unemployment. “It’s not our intended outcome, but it’s certainly a possibility.” “It’s certainly a possibility,” he said in response to a question from Sen. Powell acknowledged that a recession is possible as the Fed pushes borrowing costs steadily higher. Several Republicans charged that the Powell Fed had moved too slowly to begin raising rates and now must speed up its hikes. Testifying to the Senate Banking Committee, Powell faced skeptical questions from members of both parties about the Fed’s ability to tame inflation, which has surged to the top of Americans’ concerns as congressional elections near.ĭemocrats wondered whether the Fed’s accelerated rate hikes will succeed in curbing inflation or might instead just tip the economy into a downturn. WASHINGTON (AP) - Federal Reserve Chair Jerome Powell sought Wednesday to reassure the public that the Fed will raise interest rates high and fast enough to quell inflation, without tightening credit so much as to throttle the economy and cause a recession.

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