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US central bank needs to raise interest rates further, president says


Federal Reserve still needs to accelerate rate hikes if it hopes to contain inflation, says its chairman

The Federal Reserve will need to further accelerate interest rate hikes to contain inflation, which is already at a 40-year high, Fed Chairman Jerome Powell told the Senate Banking Committee on Wednesday. .

“I think the most recent inflation indicators, [the] various types, suggest to us that we need to speed up the rate at which we can reach a neutral level“, he said, calling for a”restrictive policy“which would slow the growth of the money supply and reduce inflation to a”neutral” pace – the 2% target sought by the central bank.

Supposedly “restrictive policiesare designed to raise interest rates high enough for price growth to slow – a critical goal amid the relentless inflationary spree currently plaguing the US economy.

Explain the Fed’s goal of achieving a “soft landing“Keeping the job market growing even amid rising interest rates, Powell admitted success would be”very difficult.”

“We never said it would be easy or straightforward. It will be difficult and the events of the last few months have certainly made it even more difficult. Nevertheless, there are ways in which this could happen“, he pleaded.

However, in a nod to recent polls showing that only 11% of Americans think the “Putin’s price hikeexplanation of the current state of the US economy, Powell noted that “inflation was high, certainly before the war in Ukraine broke outAsked by Sen. Bill Hagerty (R-Tennessee) what precisely was causing the inflation spike.

Powell has already announced an interest rate hike of 0.75% last week, the biggest in 28 years, bringing the total interest rate to 1.75%, in a bid to bring inflation down to 2%. Projections published by the central bank suggest that interest rates could reach 3.4% by the end of the year.

He said at the time that the Fed did not plan to accelerate the pace of its interest rate hikes. However, this week’s testimony before Congress indicates otherwise.

With inflation showing no signs of abating, the central bank may believe the situation has become more urgent – inflation rose to an annualized rate of 8.6% in May, more than four times the target of 2 % preferred by the central bank.

However, many economists worry that raising rates too quickly could push the United States into a recession. The US economy will officially be in recession if the second quarter does not reflect positive growth, as it has already experienced negative growth of 1.4% in the first quarter.

READ MORE:
Announcement of the largest interest rate hike in the United States since the 1990s

The president insisted that rate hikes are not meant to induce a recession, while acknowledging the difficulty of achieving a “soft landing– strike a balance between preventing debt from spiraling out of control and containing inflation.

Powell nevertheless stressed that the Fed’s first priority was to reduce inflation. “Obviously people don’t like inflation,” he said.

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