Federal Reserve Chairman Jerome Powell said Wednesday that he will propose a increase in reference rates of a quarter of a percentage point (0.25%) at the next meeting of the monetary committee of the agency in mid-Marchor.
Powell does not rule out a stronger hike if needed at future meetings. “I think it will be appropriate to increase our target range … at the March meeting in two weeks. And I am prone to proposing a 25 basis point rate hike,” he said during a congressional hearing.
Conflict in Ukraine
Powell also referred to the impact of the conflict in Ukraine on the US economy, which he considers “very uncertain.”
Despite prices rising at a rate unprecedented in four decades and oil above $100 a barrel, “the short-term effects on the US economy of the invasion of Ukraine, the ongoing war, sanctions and the events that lie ahead remain highly uncertain,” Powell said in his semi-annual statement to Congress.or. “We will closely monitor the situation.”
Meanwhile he Rising oil prices could fuel inflation, sanctions on Russia for the invasion and other side effects of the conflict could slow economic recovery.
Setting monetary policy in the current environment requires “recognizing that the economy is uncertain,” Powell argued. “We will have to be agile in responding to incoming data and evolving outlooks,” she cautioned.
Objective: a “long expansion”
Powell said Wednesday before the House Financial Services Committee that the central bank’s goal is to “promote long-term expansion” to ensure that all of society benefits from economic growth.
But “high inflation imposes significant hardship” on Americansand the The Fed will use all its tools to ensure that this trend does not become chronic, he reiterated.
The high rates of inflation have been driven in large part by supply chain bottlenecks, which “have been bigger and longer-lasting than anticipated.”
The The Fed expects inflation “to ease over the course of the year as supply constraints are eased,” though it says it is “watchful for risks of potential additional upward pressure.”
In addition to the rise in the price of crude oil, it is It is foreseeable that other raw materials, such as wheat, will become more expensive due to the war.
The Fed lowered the benchmark interest rate to zero at the start of the pandemic to stimulate consumption and investment, and flooded the financial system with cash in an effort to stave off a serious recession.
Along with large federal spending packages, those efforts were successful. The US economy recovered quickly, growing 5.7% in 2021.
But the high demand, lSupply chain problems and labor shortages have pushed the Fed’s inflation rate to 6.1% year-on-year in January, well above the Fed’s target of 2%.
Additionally, companies are struggling to hire enough workers to ramp up production and meet high demand.
“The labor market is extremely tight,” Powell said, despite unemployment at 4%, close to the pre-pandemic low of 3.5%. In addition “an unprecedented number of workers are leaving work to accept new jobs, and wages are increasing at their fastest rate in many years,” she summarized.
Source: AFP
