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Business Live Updates: Powell Says the Fed Is ‘Not Attempting to Provoke’ a Recession


Credit…Haiyun Jiang/The Recent York Times

Jerome H. Powell, the chair of the Federal Reserve, said that the central bank might give you the option to lower rapid inflation without tipping America right into a painful downturn, though he cautioned that pulling it off could be “very difficult” to realize and that a recession is “actually a possibility.”

“We’re not attempting to provoke, and don’t think that we are going to need to impress, a recession,” Mr. Powell said while testifying before the Senate Banking Committee on Wednesday. “But we do think it’s absolutely essential that we restore price stability, really for the good thing about the labor market, as much as the rest.”

Mr. Powell, who will return to Capitol Hill to testify again on Thursday, is facing a difficult moment. Inflation as measured by the Consumer Price Index is running at 8.6 percent, the fastest pace in greater than 4 many years, having re-accelerated in May because of surging gas prices and airfares. Although the economy stays strong and unemployment is historically low at 3.6 percent, the fast price increases have prompted the Fed to regulate its policy at an increasingly rapid pace to attempt to cool demand.

The Fed raised its policy rate of interest by three-quarters of a percentage point last week, the most important move since 1994, having lifted them by a quarter-point in March and half-point in May. The escalation comes as central bankers turn into increasingly concerned about how broad inflation is, touching the costs of products and services that span the economy, and as they worry that consumer expectations for future price increases have begun to creep up. If people expect faster inflation, they could ask for higher wages to cover costs and prompt employers to charge more because of climbing labor costs, setting off an inflationary cycle.

“We do understand the total scope of the issue, and we’re using our tools to handle it pretty vigorously now,” Mr. Powell said during his testimony. “Price stability is actually the bedrock of the economy.”

The Fed’s policies to restrain demand and wrestle inflation lower are expected to harm the economy. Central bankers themselves predict that unemployment will rise and growth will slow as higher rates take effect, making mortgages, bank card debt and business loans dearer.

“I feel what you will note is sustained progress, expeditious progress toward higher rates,” Mr. Powell said.

Wall Street investors are concerned that the central bank will set off a recession in its bid to bring inflation lower, and economists have warned that unemployment might have to climb markedly to bring demand down enough that inflation comes back under control. Households are fearful concerning the future, and consumer confidence is plummeting. Fed officials have reiterated that they are attempting to stabilize prices without causing a recession, though they’ve also acknowledged that pulling that off can be difficult.

Achieving that goal “has been made significantly tougher by the events of the past few months,” Mr. Powell said, citing supply disruptions coming from shutdowns in China and the war in Ukraine which have pushed prices even higher.

Still, he said that the central bank must do what it will probably to rein in price increases, because the opposite risk is that the Fed won’t restore price stability and high inflation will turn into entrenched within the economy, hurting low-income people greater than anyone else.

“I’m attempting to lower demand growth — we don’t know that demand has to really go down, which could be a recession,” Mr. Powell said. He later added that “this may be very high inflation, and it’s hurting everybody, and we want to do our job and get inflation back on a path all the way down to 2 percent.”

Looming economic pain spells trouble for most of the politicians Mr. Powell is testifying before this week — particularly the Democrats in power. Voter approval of President Biden has sunk under the load of inflation, which the administration repeatedly calls its top priority.

In actual fact, Mr. Biden planned to call on Congress on Wednesday to temporarily suspend the federal gas tax, an effort to slow soaring fuel prices. Passing such a measure could prove difficult, and economists have generally dismissed that policy as having a limited impact, as do a lot of the measures to fight inflation that the administration has been in a position to roll out.

The Fed, which is independent of politics, is the country’s predominant answer to quickly climbing prices. Its policies could also be painful, but it surely is isolated from election cycles in order that central bankers could make tough short-term decisions to place the economy on a more stable long-term track.

However the central bank’s policies are usually not perfectly suited to this moment. Its rates work to slow demand, but most of the aspects pushing inflation higher today are linked to produce: China’s attempts to contain the coronavirus have slowed factory production, gas and food costs jumped after Russia invaded Ukraine, and lingering shipping issues that began amid the pandemic have kept some parts and goods out of stock.

“Inflation has obviously surprised to the upside over the past 12 months, and further surprises could possibly be in store,” Mr. Powell said Wednesday.

While the White House has stressed the Fed’s central role in fighting inflation, some Democratic senators — including Elizabeth Warren of Massachusetts — questioned whether hurting the economy was the precise the answer to today’s rapid price increases. Some urged a more tailored approach, whilst the White House’s more precise efforts struggle to realize traction.

Mr. Powell acknowledged that rate moves wouldn’t bring down food or fuel prices, but that they affect the economy by making it more costly to spend with borrowed money, pushing down stock and other asset prices, and thru global currency adjustments.

“The concept is to moderate demand in order that it will probably be in higher balance with supply,” Mr. Powell said.

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