WASHINGTON: The US central bank wants to see economic growth slowing and “clear” evidence of inflation decelerating before it pulls back on efforts to slow the economy, Federal Reserve Chair Jerome Powell said Tuesday.
The world’s largest economy is facing the fastest inflation in four decades, prompting the Fed to go to battle to try to cool price pressures, announcing earlier this month the biggest interest rate increase since 2000. Powell said policymakers agree another aggressive increase is “on the table” in June and July.
“What we need is to see… growth moving down from the very high levels that we saw last year, moving down to a level that’s still positive” but allows supply to catch up with demand, Powell said at an event with The Wall Street Journal.
Central bankers need to see “clear and convincing evidence that inflation pressures are abating and inflation is coming down. And if we don’t see that, then we’ll have to consider moving more aggressively,” he said.
But the outlook is highly uncertain, with the economy buffeted by unprecedented, simultaneous challenges, including the fallout from a once-in-a-century pandemic, ongoing supply chain issues, the impact on prices and commodities from the war in Ukraine, and an unexpected labor shortage, he said.
“We don’t know the path of the economy. There are many global events going on that can affect that that are really not under our control,” Powell cautioned.
So the decision on whether to slow rate hikes is “going to be a judgment call” based on incoming data in coming months, but the mission to bring down inflation is critical since price stability is the “bedrock of the economy.”
The Fed chief, who was recently confirmed for a second term at the helm of US monetary policy, said the economy is strong enough to withstand rising credit costs, but the process of getting it back into balance could involve some pain.
Officials are hoping to achieve a “soft landing” – slowing price pressures without tipping the economy into a recession – but he acknowledged that the Fed does not have “precision tools” at its disposal and some landings are “just a little bumpy.”
The Fed slashed the benchmark borrowing rate to zero at the start of the pandemic in March 2020 and pumped cash into the financial system to prevent a severe downturn, but with the economy roaring back, helped by massive government stimulus, the central bank started to pull back on its policies this year, including raising rates twice so far.