Hiking

Powell says the Fed will keep raising rates until there is ‘hard evidence’ that inflation is slowing

Topline

Federal Reserve Chairman Jerome Powell told Congress on Wednesday that the central bank is “moving quickly” to raise interest rates and remains “firmly committed” to doing so until there are “irrefutable evidence” that inflation is normalizing.

Highlights

In his semiannual monetary policy testimony to Congress, Powell was asked by lawmakers how the central bank will go about tackling soaring inflation, which remains at its highest level in 41 years.

The Fed raised rates 75 basis points last week, its biggest increase since 1994, with Powell also signaling that a similar rate hike is likely at the next policy meeting in July.

Addressing Congress on Wednesday, Powell pledged that the Fed would not hesitate to continue raising rates at a rapid pace — and further than expected — if rising inflation persists.

“It is essential that we reduce inflation,” he said in prepared remarks, because “continued rate increases will be appropriate” until the central bank sees “irrefutable evidence” that the inflation is moderating to return to the long-term objective of 2%.

“The spike in crude oil and other commodity prices that resulted from Russia’s invasion of Ukraine is driving up gasoline and fuel prices and creating additional upward pressure on the inflation,” Powell described, adding that COVID-19-related lockdowns in China are also “likely to exacerbate ongoing supply chain disruptions.”

Amid the market’s sell-off this year, Powell told Congress that the Fed will “strive to avoid adding uncertainty” in what is already an “extraordinarily difficult” time and remains “strongly committed.” to bring down inflation.

Crucial quote:

“We have both the tools we need and the determination it will take to restore price stability on behalf of American families and businesses,” Powell said. “It is essential that we bring inflation down if we are to have a prolonged period of good labor market conditions that benefit everyone.”

To monitor :

The Fed is “committed to taking the necessary steps to restore price stability” and the U.S. economy remains “very strong and well positioned to handle tighter monetary policy,” Powell told Congress. “We will make our decisions meeting by meeting” and “be agile” in responding to economic data, he added.

Further reading:

Dow plunges 400 points as Wall Street banks warn of ‘significant slowdown’ and raise recession risks (Forbes)

Stocks post worst week since March 2020 amid ‘deafening’ recession worries (Forbes)

Here’s how markets reacted the last time the Fed raised rates by 75 basis points (Forbes)