August 8, 2022

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Powell Says Fed Can Avert Recession But Task Getting Tougher

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(Bloomberg) — Federal Reserve Chair Jerome Powell said the US economy is in “strong shape” and the central bank can reduce inflation to 2% while maintaining a solid labor market, even though that task has become more challenging in recent months.

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He also vowed to ensure rapid price increases don’t become entrenched, saying that “we will not allow a transition from a low inflation environment to a high inflation environment.”

“We hope that growth will remain positive,” Powell said Wednesday during a panel discussion at the European Central Bank’s annual policy forum in Sintra, Portugal. Household and business finances are also in solid shape, and “overall the US economy is well positioned to withstand tighter monetary policy.”

Read Bloomberg’s TOPLive blog on the ECB conference panel

Raising interest rates without sparking a recession “is our aim and we believe there are pathways to achieve that,” Powell said, reiterating comments he’s made this month. The Fed on June 15 raised interest rates by 75 basis points, the biggest increase in three decades. Powell has signaled that another move of that size — or a 50 basis-point increase — will be on the table when they meet again in late July.

He reiterated Wednesday that the Fed is raising rates “expeditiously” and aims to move “into restrictive territory fairly quickly,” referring to having borrowing costs at levels that would restrain rather than spur economic growth.

Powell and his colleagues have pivoted aggressively to fight the hottest inflation in 40 years amid criticism that they left monetary policy too easy for too long as the economy recovered from Covid-19. They’ve raised rates by 1.5 percentage points this year and officials forecast about 1.75 points of further cumulative tightening in 2022.

Powell said financial markets’ pricing for Fed rate-hike expectations is “pretty well aligned with where we’re going,” noting that…



2022-06-29 10:38:41

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