Powell: Taming inflation won’t require surge in jobless rate
WASHINGTON — The Federal Reserve could increase the size of its interest rate hikes and raise borrowing costs to higher levels than previously projected if evidence continues to point to a robust economy and persistently high inflation, Chair Jerome Powell told a Senate panel Tuesday.
“The latest economic data have come in stronger than expected, which suggests that the ultimate level of interest rates is likely to be higher than previously anticipated,” Powell testified to the Senate Banking Committee. “If the totality of the data were to indicate that faster tightening is warranted, we would be prepared to increase the pace of rate hikes.”
Powell’s warning shook financial markets and raised worries about a possible recession down the line. The S&P 500 dropped 1.5% for one of its worst days of the year so far.
During Tuesday’s hearing, Democratic senators stressed their belief that today’s high inflation is due mainly to the combination of continued supply chain disruptions, Russia’s invasion of Ukraine and higher corporate profit margins.
Sen. Elizabeth Warren, D-Mass., noted that Fed officials have projected that the unemployment rate will reach 4.6% by the end of this year, from 3.4% now.
“If you could speak directly to the 2 million hardworking people who have decent jobs today, who you’re planning to get fired over the next year, what would you say to them?” Warren asked.
“We actually don’t think that we need to see a sharp or enormous increase in unemployment to get inflation under control,” Powell responded. “We’re not targeting any of that.”
By contrast, the committee’s Republicans mainly blamed President Joe Biden’s policies for high inflation and argued that if government spending were cut, inflation would slow.