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Powell Questions the Dynamics of a Potentially New Economy
Summary: Federal Reserve Chairman Jerome Powell posited that the pandemic has disrupted the economy and expects more inflation and volatility, creating havoc for central banks to manage, when he spoke at the European Central Bank’s annual conference on Wednesday. Powell said at the economic policy conference that the economy is currently being driven by different forces. ...
Federal Reserve Chairman Jerome Powell posited that the pandemic has disrupted the economy and expects more inflation and volatility, creating havoc for central banks to manage, when he spoke at the European Central Bank’s annual conference on Wednesday.
Powell said at the economic policy conference that the economy is currently being driven by different forces. The question Powell has now is: will the economy go back to something we have seen in the recent past, or will it be a different operating and functioning economy than we have seen before?
Powell notes the pandemic may have started the initial wave of inflation, volatility and uncertainty, but Russia’s war against Ukraine has exacerbated inflation since the war started in February. Central banks around the world have responded by hiking up interest rates to combat the surging prices.
Since March, the Fed has raised the federal-funds rate three times, now sitting between 1.5% and 1.75%. Earlier this month, the Fed raised the rate 0.75% or 75 basis points, which was the largest singular increase in the last 28 years. The Fed doesn’t plan to stop there, with the chairman previously mentioning that he expects to raise interest rates again at their next meeting which takes place on July 26-27.
Just a week ago Powell argued in front of congressional lawmakers that the U.S economy can handle a tighter monetary policy in an effort to curb inflation.
“At the Fed, we understand the hardship high inflation is causing,” the Chairman said. “We are strongly committed to bringing inflation back down, and we are moving expeditiously to do so. We have both the tools we need and the resolve it will take to restore price stability on behalf of American families and businesses.”
In order to accomplish the feat, Powell said that the Fed plans to eventually raise interest rates to a “neutral level” of 2.5% and perhaps beyond that number to a “modestly restrictive level.” That more restrictive level could be anywhere from 3% to 3.5%.
The Fed’s ultimate goal is to curb or limit inflation without causing a recession, something Powell noted is becoming increasingly difficult.
Author: Tyler Irvin
Tags: Federal Reserve,inflation,Jerome Powell
Link: Powell Questions the Dynamics of a Potentially New Economy [Copy]
