Federal Reserve Chairman Jerome Powell discussed the ongoing concern of inflation and explained how it will be addressed.
At a Glance
- Federal Reserve Chairman Jerome Powell said that the government is taking steps to curb inflation.
- Such measures include increasing the federal interest rate.
- Powell also addressed how inflation and supply chain issues affect the cost of gas.
Federal Reserve Chairman Discusses Inflation
Federal Reserve Chairman explained that the government intends to crack down on inflation.
“The labor market is very strong, and inflation is much too high,” Powell stated. However, he acknowledged that the higher cost of living is hindering economic recovery. His remarks come in the wake of the federal interest rate being increased for the first time in over three years. Consumers are suffering from the worst inflation since the early 1980s, with the rate reaching 7.9% last month.
“We will take the necessary steps to ensure a return to price stability,” said Powell. “In particular, if we conclude that it is appropriate to move more aggressively by raising the federal funds rate by more than 25 basis points at a meeting or meetings, we will do so. And if we determine that we need to tighten beyond common measures of neutral and into a more restrictive stance, we will do that as well.”
To break it down: A basis point is equal to 0.01%. The Federal Open Market Committee meets six more times this year. This means there could be six more 25 basis point increases within a few months. Alternatively, CNBC suggested that the next price hike could be 50 basis points.
Additionally, the goal is to drop that inflation rate to around 2%. Powell indicated that the Federal Reserve is taking these harsher steps because the soft approach failed.
“It continues to seem likely that hoped-for supply-side healing will come over time as the world ultimately settles into some new normal, but the timing and scope of that relief are highly uncertain,” added Powell. “In the meantime, as we set policy, we will be looking to actual progress on these issues and not assuming significant near-term supply-side relief.”
Powell Discusses Rising Gas Prices
The Federal Reserve Chairman also opened up about the current crisis regarding gas prices. The current strategy is to focus first on inflation. The result would hopefully stop further cost increases across the board.
“In normal times, when employment and inflation are close to our objectives, monetary policy would look through a brief burst of inflation associated with commodity price shocks,” he said. “However, the risk is rising that an extended period of high inflation could push longer-term expectations uncomfortably higher, which underscores the need for the Committee to move expeditiously as I have described.”
According to Powell, the reason for undergoing these harsher tactics is to ward off another recession. However, he said: “The probability of a recession in the next year is not particularly elevated.”