Fed Chairman Jay Powell warns there will be ‘SOME PAIN’ from efforts to tackle crippling inflation

Federal Reserve Chairman Jay Powell has issued a stern warning to Americans already struggling with crippling price hikes: there will be more pain to come as the central bank tries to bring inflation down without plunging the economy in recession.

The Fed has started raising interest rates to slow borrowing and spending enough to calm inflation, which hit an annual rate of 8.3% last month.

But Powell said the drug will bring “a bit of pain” as the Biden administration tries to manage a crisis that threatens to dominate November’s midterm elections.

In an interview with Marketplace, he was asked what he would say to someone who lost their job or missed a pay raise as the Fed tried to stifle inflationary spending.

“So I would say that we fully understand and appreciate how painful inflation is, and that we have the tools and the will to bring it down to 2%, and we are going to do it.”

“I will also say that the process of reducing inflation to 2% will also cause some pain, but ultimately the most painful thing would be if we failed to cope with it and inflation had to s rooted in the economy at high levels. , and we know what it is.

“And these are just people losing the value of their paycheck due to high inflation and ultimately we should go through a much deeper recession. And so we really have to avoid that.

Federal Reserve Chairman Jay Powell on Thursday issued a stark warning to Americans already struggling with crippling price hikes. Lowering inflation will bring ‘a bit of pain’

Inflation in the United States has fallen slightly from the four-decade high reached in March

Inflation in the United States has fallen slightly from the four-decade high reached in March

President Joe Biden has repeatedly said tackling inflation is his number one priority

President Joe Biden has repeatedly said tackling inflation is his number one priority

The central bank has already raised interest rates by 0.75 percentage points from near-zero levels in place since the start of the pandemic.

More hikes are expected as the Fed tackles a 40-year inflation peak.

President Joe Biden said on Tuesday he was doing everything possible to stabilize prices

“I want every American to know that I take inflation very seriously and it is my national priority,” he said.

Powell made his comments shortly after the Senate confirmed him for a second four-year term.

The 80-19 bipartisan vote included opposition from most Republicans, but also Democratic sensitivities Elizabeth Warren and Bob Menendez. Menendez claimed that Powell had not done enough to promote diversity at the Fed.

While Powell led the Federal Reserve in a greater emphasis on maximum employment with a higher inflation tolerance for much of the pandemic, his program has now reversed course. The Fed has a dual mandate: to maintain full employment and to keep inflation around 2% per year.

The Fed is currently raising interest rates to slow borrowing and spending enough to calm inflation, which now stands at 8.3% in April from a year ago.

The task of cooling the economy enough to slow inflation without causing a recession is notoriously difficult – and risky. Economists say such an outcome is possible but unlikely with such high inflation.

The U.S. central bank began raising its key overnight lending rate in March and raised it again last week, by half a percentage point – the biggest rate increase in 22 years.

Powell’s support for Congress demonstrates that Republicans largely blame President Biden’s spending, particularly the $1.9 trillion U.S. bailout, rather than the Fed’s ultra-low interest rates and the purchase of trillions of dollars of securities.

The Senate on Thursday confirmed Federal Reserve Chairman Jerome Powell for a second four-year term, as the former investment banker leads the central bank in tightening monetary policy to combat high inflation since 40 years.

The Senate on Thursday confirmed Federal Reserve Chairman Jerome Powell for a second four-year term, as the former investment banker leads the central bank in tightening monetary policy to combat high inflation since 40 years.

Inflation started to soar in April 2021, meaning annual increases now start from a higher base level

Inflation started to soar in April 2021, meaning annual increases now start from a higher base level

Powell at a press conference after the last interest rate hike signaled that more half-percent rate hikes are likely to occur at future Fed policy meetings.

However, many economists criticize the Fed for having waited too long to tighten its monetary policy. For much of 2021, the Fed insisted that inflation would be “transient.” He continued to buy stocks and bonds until March, when prices had already climbed 8.5% from a year earlier. It was only in March that the Fed raised its benchmark interest rate from 0.25% to 0.5%.

The central bank also said it would begin next month to eliminate its $9 trillion portfolio of Treasuries and other accumulated assets to smooth markets and increase the impact of rate cuts made during the pandemic. .

Deutsche Bank analysts say Powell’s pivot, from super-easy crisis policy to bigger-than-usual rate hikes that raise longer-term borrowing costs, is already tantamount to tightening the fastest monetary policy since 1981.

Stocks have struggled in response, with the S&P 500 having fallen 19% this year. The tech-heavy Nasdaq fell 29%, while the US economy unexpectedly fell 1.4% last quarter.

Big tech companies have lost more than $1 trillion in combined market value over the past three trading sessions as investors flee risky growth stocks in favor of safer consumer staples.

“History shows that we should have acted sooner,” Powell admitted during a Senate hearing in early March.

The Fed’s prediction that inflation would ease as supply chain bottlenecks eased “turned out to be wrong,” he said, “not possibly wrong. conceptually, but it just takes a lot longer for the offering to heal than we thought.”

Powell, who has been on the Fed’s Board of Governors since 2012, was first named central bank head by President Trump, who then embittered Powell for a series of rate hikes.

Biden renominated Powell, a Republican, defying demands from progressives to appoint Lael Brainard, who they said aligned more closely with the president’s strong economic agenda. Brainard ended up getting the no. 2 spot.

Leading critic Senator Elizabeth Warren lashed out at Powell in late September, calling him a “dangerous man”.

The Massachusetts Democrat argued that Powell weakened the US banking system by rolling back financial regulations passed after the 2008 financial crisis.

“Time and time again you have acted to make our banking system less secure, and that makes you a dangerous man at the helm of the Fed, and that is why I will oppose your renomination.”

In 2019, the Fed eased rules that ensure companies have enough cash to meet their obligations by lowering liquidity requirements for banks. The guidelines were put in place after the 2008 crisis.

Fellow progressives led by Ocasio-Cortez and other team members, Reps. Rashida Tlaib and Ayanna Pressley, accused Powell of not caring enough about climate change.

“Under his leadership, the Federal Reserve has taken very little action to mitigate the risk that climate change poses to our financial system,” they wrote in a letter, later adding, “Second, under Chairman Powell, the Federal Reserve significantly weakened many of the reforms enacted in the wake of the Great Recession.

Add Comment