The chairman of the US Federal Reserve, Jerome Powell, spoke at a press conference in Washington, DC, on May 4, 2022.
Jim Watson AFP | Getty Images
Federal Reserve Chairman Jerome Powell warned on Thursday that tackling inflation could cause some economic pain, but remains his top priority.
Powell said he could not promise a so-called soft landing for the economy as the Fed raises interest rates to reduce price rises that are close to their fastest pace in more than 40 years.
“So the soft landing is really just a return to 2% inflation, while keeping the labor market strong. And it’s quite a challenge to achieve that right now, for several reasons, “the central bank chief said in an interview with Marketplace.
He noted that with a tight labor market that increases wages, avoiding a recession, which often follows aggressive policy tightening, will be a challenge.
“So it will be a challenge, it will not be easy. Nobody here thinks it will be easy,” he said. “However, we think there are roads … to get there.”
The remarks were released the same day the Senate overwhelmingly confirmed Powell for a second term, a move that came nearly seven months after President Joe Biden first presented the nomination.
At the top of the list of his priorities for the second term will be controlling price inflation, which reached 8.3% a year in April, just above the 40-year high marked in March.
Last week, the Fed approved a half-percentage point increase in interest rates, followed by a quarter-point increase in March. Markets expect the Federal Open Market Committee, which sets interest rates, to raise another half a point in June and continue to raise interest rates until the end of the year.
Powell, for his part, said he understood the additional pain that higher interest rates could cause, but said the Fed needed to act aggressively.
“Our goal, of course, is to bring inflation back to 2% without the economy falling into recession, or, to put it another way, keeping the labor market relatively strong,” he said. “This is what we are trying to achieve. I think the only thing we really can’t do is fail to restore price stability. Nothing in the economy works, the economy doesn’t work for anyone without price stability.”
Powell has come under some criticism for the Fed’s slowdown in raising interest rates and halting its bond-buying program, even as inflation rises. In addition, at his press conference after last week’s meeting, he made remarks that were interpreted as taking more aggressive steps, such as an increase of 75 basis points outside the table.
He said in an interview with Marketplace that he was “not sure how much of a difference it would make” to act faster, adding that “we did the best we could.”
“Now we see the picture clearly and are determined to use our tools to get us back to price stability,” Powell said.