May 24, 2022

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Powell: "Soft" economic decline may be out of Fed control

Powell: “Soft” economic decline may be out of Fed control

Washington (AFP) – Federal Reserve Chairman Jerome Powell, after winning a second term in the Senate Earlier today, he admitted for the first time on Thursday that high inflation and economic weakness abroad could thwart his efforts to avoid causing a recession.

For weeks, Powell has portrayed the Fed’s drive to raise interest rates as consistent with the so-called “soft landing” of the economy. Under this scenario, the Fed would be able to tighten borrowing costs enough to cool the economy and rein in inflation without going so far as to push the economy into recession.

But in an interview with “Marketplace” on NPR, Confess Powell That this balance – which many economists said they doubt the Federal Reserve will be able to achieve – could be undermined by the economic slowdown in Europe and China.

“The question of whether or not we can implement a soft landing — may actually depend on factors that we don’t control,” the Fed chair said. “There are huge events, geopolitical events happening all over the world, which are going to play a very important role in the economy in the next year or so.”

Comments like this reflect less confidence in avoiding a recession than Powell previously said. Just last week, he said at a press conference, “I think we have a good chance of getting a touchdown or a soft or a soft result.”

On Thursday, he said that slowing inflation to the Fed’s 2% annual target – from currently 6.6%, the central bank’s preferred measure – “would also involve some pain, but in the end it would be more painful if we failed to deal with it and inflation would take root in the economy.” at high levels.”

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Europe’s economies are suffering from high inflation, which has been exacerbated by the Russian invasion of Ukraine and the sudden rise in the prices of natural gas and oil. Europe was more dependent on Russian energy supplies than the United States was.

China’s strict COVID lockdown policies Ports have closed, hampering exports and slowing consumer spending in cities like Shanghai, where millions of Chinese have been largely confined to their homes for weeks.

In his interview with NPR, Powell also appeared to suggest that the Fed might at least consider raising the benchmark interest rate by a very large three-quarters of a point if inflation fails to show signs of abating in the coming months. Last week, the stock market initially rose when it appeared that Powell had raised the benchmark interest rate by three-quarters of a point.

After repeating his comment last week that half-point increases were likely at each of the Fed’s next two meetings, in June and July, Powell added on Thursday: “If things go better than we expect, we’re willing to do less. If they come worse. Than we expected, we are ready to do more.”

When asked if “doing more” would mean a three-quarter-point increase, Powell said: “I’ve seen this committee adapt to the data coming in and the evolving forecast. And that’s what we’ll continue to do.”