POWELL ‘JOBS’ ALERT

Axes to cut inflation

Federal Reserve Chair Jerome Powell said Thursday the central bank’s commitment to cooling inflation was “unconditional” — even as he warned that steps required to bring down prices could put more Americans out of work.

Powell testified on Capitol Hill for a second straight day and faced a grilling by members of the House Financial Services Committee, who pressed for answers on the central bank’s effort to combat decadeshigh inflation while seeking to avoid a recession.

“We have a labor market that’s sort of unsustainably hot and we’re very far from our inflation target,” he said.

“We really need to restore price stability and get inflation back down to 2%, because without that, we’re not going to be able to have a sustained period of maximum employment where the benefits are spread very widely and where people’s wages aren’t being eaten up by inflation.”

The Fed is scrambling to address inflation that hit 8.6% in May — well above the level that economic policymakers deem acceptable. But the central bank’s move earlier this month to hike interest rates by three-quarters of a percentage point exacerbated fears that policy tightening will topple the economy into a recession.

During his testimony before a Senate panel one day earlier, Powell acknowledged the risk, noting the Fed was trying to avoid a recession but that it was “certainly a possibility.”

Another hike due

The Fed is expected to hike rates by at least a halfpercentage point in July, with similar increases likely in the months ahead if inflation remains persistent.

Rate hikes to date have not had a major impact on the jobs market, with the national unemployment rate hovering at just 3.6% through May. But Powell admitted further Fed action could cause more job losses as companies look to shed expenses.

“We don’t have precision tools,” Powell said, “so there is a risk that unemployment would move up, from what is historically a low level, though. A labor market with 4.1% or 4.3% unemployment is still a very strong labor market.”

Powell also admitted the Fed’s effort to bring inflation back down to 2% while maintaining a strong labor market — the so-called “soft landing” sought by investors — has become “significantly more challenging” in recent months.

He cited the impact of Russian’s invasion of Ukraine, which has contributed to higher gas and food prices and supply-chain disruptions.