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Powell says the Fed is not going to hesitate to maintain raising rates until inflation comes down

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Jerome Powell, chairman of the U.S. Federal Reserve, arrives for a Senate Banking Committee hearing in Washington, D.C., on Thursday, July 15, 2021.

Al Drago | Bloomberg | Getty Images

Federal Reserve Chair Jerome Powell emphasized his resolve to get inflation down, saying Tuesday he’ll back rate of interest increases until prices start falling back toward a healthy level.

“If that involves moving past broadly understood levels of neutral we cannot hesitate to do this,” the central bank leader told The Wall Street Journal in a livestreamed interview. “We’ll go until we feel we’re at a spot where we will say financial conditions are in an appropriate place, we see inflation coming down.

“We’ll go to that time. There won’t be any hesitation about that,” he added.

Earlier this month, the Fed raised benchmark borrowing rates by half a percentage point, the second increase of 2022 as inflation runs around a 40-year high.

Powell said following that increase that similar 50 basis point moves were more likely to come at ensuing meetings as long as economic conditions remained just like where they at the moment are.

On Tuesday, he repeated his commitment to getting inflation closer to the Fed’s 2% goal, and cautioned that it may not be easy and will come on the expense of a 3.6% unemployment rate that’s just above the bottom level because the late Sixties.

“You’d still have a powerful labor market if unemployment were to maneuver up just a few ticks,” he said. “I’d say there are a variety of plausible paths to have a soft as I said softish landing. Our job is not to handicap the percentages, it’s to try to realize that.”

The U.S. economy saw growth contract at a 1.4% pace in the primary quarter of 2022, due largely to ongoing supply side constraints, spread of the omicron Covid variant and the war in Ukraine.

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Nevertheless, tighter monetary policy has added to concerns a few steeper downturn and has sparked an aggressive sell-off on Wall Street. Along with the 75 basis points in rate of interest hikes, the Fed also has halted its monthly bond-buying program, which can also be generally known as quantitative easing, and can begin shedding a few of the $9 trillion in assets it has acquired starting next month.

Powell said he still hopes the Fed can achieve its inflation goals without tanking the economy.

“You’d still have a powerful labor market if unemployment were to maneuver up just a few ticks. I’d say there are a variety of plausible paths to have a soft as I said softish landing. Our job is not to handicap the percentages, it’s to try to realize that,” he said.

He added that “there could possibly be some pain involved to restoring price stability” but said the labor market should remain strong, with low unemployment and better wages.

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