‘Inflation is much too high, we are moving expeditiously to bring it back down,’ Fed Chair Jerome Powell says
The rise in crude oil prices causes higher inflation and the coronavirus lockdown in China worsens supply disruptions, Federal Reserve Chair Jerome Powell said Wednesday.
“Price pressures have spread to a broader range of goods and services. The surge in prices of crude oil and other commodities that result from Russia’s invasion of Ukraine is creating additional upward pressure on inflation,” Powell said in a press conference after the central bank’s historic rate hike.
“COVID related lockdown in China is likely to further exacerbate supply chain disruptions,” he added.
The Fed earlier raised its benchmark interest rate by 50 basis points after the conclusion of its two-day meeting.
The central bank’s aggressive move, the steepest rate hike since 2000, carried the benchmark rate to a range of 0.75% to 1%, from its previous level of 0.25% to 0.5%,in order to fight against record-high inflation.
“Inflation is much too high and we understand the hardship it is causing. And we are moving expeditiously to bring it back down. We have both the tools we need and the resolve it will take to restore price stability,” he said.
“It is essential that we bring inflation down if we are to have sustained period of strong labor market conditions that benefit all,” he added.
Powell said the American economy expanded at a robust pace of 5.5% last year, but the overall economic activity edged down in the first quarter.
He noted that the personal consumption expenditures (PCE) price index, the Fed’s preferred inflation indicator, jumped 6.6% in March on an annual basis.
The Fed chair signaled that it is unlikely the central bank would make higher interest rates than 50 basis points in the coming months.
“A 75 basis point [interest rate] increase is not something that the committee [FOMC] is actively considering. I think expectations are that we will start to see inflation flattening out,” he said.
“I would say we have a good chance to have a soft landing,” he added.
Powell, however, noted that there is a broad sense among the FOMC members that additional 50 basis points of interest rate increases should be on the table for the next couple of meetings.
The Fed chair said Russia’s war on Ukraine is likely to restrain economic activity abroad and further disrupt supply chains, creating spillover to the American economy through trade and other means.
Powell added that he believes the unemployment rate in the world’s largest economy will continue to decline as the labor market recovers from the coronavirus pandemic.