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• Fed Chair Powell said he would back rate hikes until prices fall back to healthy level
• Central bank’s 2% inflation target would come at the expense of 3.6% unemployment rate
Federal Reserve Chair Jerome Powell on Tuesday said he would back interest rate hikes until the inflationary pressure starts falling back toward a healthy level.
“If that involves moving past broadly understood levels of neutral, we won’t hesitate to do that,” Powell told The Wall Street Journal in a live-streamed interview.
“We will go until we feel we’re at a place where we can say financial conditions are in an appropriate place, we see inflation coming down.
“We’ll go to that point. There won’t be any hesitation about that,” he added.
Earlier this month, the Fed raised benchmark borrowing rates by half a percentage point, the second increase of 2022 as inflation runs around a 40-year high.
Powell’s comment followed Fed’s 50 basis point rate hike earlier this month and indicated that similar moves can be expected to ensure that the economic conditions remain comparable to where they are now.
On Tuesday, second term Fed Chair repeated his commitment to getting inflation closer to the 2% target and cautioned that it could come at the expense of a 3.6% unemployment rate which is just above the lowest level since the late 1960s.
“You’d still have a strong labor market if unemployment were to move up a few ticks,” he said.
“I would say there are a number of plausible paths to have a soft, as I said, softish landing. Our job isn’t to handicap the odds; it’s to try to achieve that.”
The US economy saw growth contract at a 1.4% pace in the first quarter of 2022, mainly due to ongoing supply constraints, the renewed spread of the omicron variant of coronavirus and the war in Ukraine.
Powell said he still hopes the Fed can achieve its inflation goals without tanking the economy.
“You’d still have a strong labor market if unemployment were to move up a few ticks. I would say there are a number of plausible paths to have a soft, as I said, softish landing. Our job isn’t to handicap the odds; it’s to try to achieve that,” he said.
Picture Credit: Nasdaq
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