Jerome Powell Questioned by Lawmakers Over How To Curb Inflation

Jerome Powell was pressed in an interview on Thursday regarding the current spiral to a recession while simultaneously fighting record inflation rates. On the second day of his testimony, he said, “We can’t fail on this. We really have to get inflation down.” 

“We’re going to want to see evidence that it really is coming down before we declare ‘mission accomplished,’ ” he said to the House Financial Services Committee. This makes it seem Powell will be slow to lower interest rates until the Fed is certain inflation has slowed.

Rep. Trey Hollingsworth was curious about how Powell plans to balance the increasing interest rates without sending the US economy into a recession. He asked Powell how the rate policy would change in the event of a rise in joblessness and a halt in economic growth.

Regarding Mr. Hollingsworth question about a rise in joblessness, Powell responded, saying, “In that hypothetical situation, that would be a setting in which inflation could be expected to come down,” He added, “I think we’d be reluctant to cut.”

This highlights a significant problem that could confront the central bank. In the mid-70s, the Fed aggressively raised rates but, in hindsight, backed off too soon, which failed to curb high inflation, forcing more decisive action later.

Since early this year, the Fed has increased its benchmark federal-funds rate three times from near zero to a range between 1.5% and 1.75%. This includes a 0.75-percentage-point rise last week, the largest in 28 years. Mr. Powell has signaled that another increase of this size could be likely at the Fed’s next meeting, July 26-27.

NY Senator Alexandria Ocasio-Cortez pressed Mr. Powell to endorse other methods to bring down inflation, such as stiffer antitrust regulation or price controls. Powell replied, “There’s been a long history of price controls” when inflation is high, saying, “and it has not been a successful one.”

He was also questioned on whether external factors could contribute to inflation. For example, Bill Hagerty, a Tennessee Senator, asked, “Given how inflation has escalated over the past 18 months, would you say that the war in Ukraine is the primary driver of inflation in America?”  

“No,” Powell responded. “Inflation was high before, certainly before the war in Ukraine broke out.”

Powell furthermore said there were some “small concerning signs” that longer-term inflation expectations are rising. “As a general matter, people do expect inflation to come back down to levels that are consistent with our price-stability mandate.” Powell continued, “But we haven’t had a test like this. We haven’t had an extended period of high inflation for some time. So it’s not a comfortable place to be.”

Author: Garrett Meifert

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