Fed chief reassures on battling inflation

Pledge to raise interest rates helps calm investor worries

Jerome Powell, the Federal Reserve chair, told lawmakers Tuesday that a rapidly healing economy no longer needed as much help from the central bank and that keeping inflation in check — including by raising interest rates — would be critical for enabling a stable expansion that benefits workers.

Powell, whom President Joe Biden recently nominated for a second term as chair, is confronting a complicated economic moment as he moves toward another four-year stint as head of the world’s most powerful central bank. He provided his latest thoughts on the Fed’s challenge during his confirmation hearing before the Senate Banking Committee.

The economy is growing swiftly, but it has been buffeted by repeated waves of the coronavirus and by a surge in inflation that has proved stronger and longer lasting than economists had expected. Workers are finding jobs and winning wage increases, but the rising costs of housing, gas, food and furniture are pinching shoppers and tanking consumer confidence.

Technology stocks had their best day of the year Tuesday on the news that the U.S. central bank was committed to lowering inflation.

Powell’s pledge to raise interest rates seemed to calm investors, who have grown increasingly worried that rising prices could slow economic growth. But while raising interest rates would likely bring down inflation, it would also likely lead to lower growth by raising the cost of borrowing for businesses and consumers alike. The yield on the economically sensitive 10-year Treasury bond, which has been steadily ticking up since early December, fell slightly Tuesday.

Investors viewed Powell’s statements as good news for tech stocks, which are sensitive to higher longterm interest rates but also are often valued by investors during times of slower growth because those companies’ prospects are often not tied directly to the economy.

The Fed is charged with maintaining price stability, and its officials have recently signaled that they could raise interest rates several times this year to try to cool the economy and prevent rapidly rising prices from becoming permanent. Powell — who is widely expected to win confirmation — reiterated that commitment on Tuesday.

“If we see inflation persisting at high levels longer than expected, if we have to raise interest rates more over time, we will,” Powell said.

But the central bank also has a second mandate: It is supposed to guide the economy toward full employment, a situation in which people who want to work and are able to do so can find jobs. Cooling off the economy can slow hiring, so trying to foster a strong labor market and trying to set the stage for a strong labor market can require a balancing act for policymakers.

Powell squared the two goals in his testimony, suggesting that keeping price gains under control would be critical for achieving a sustainably strong labor market.

“High inflation is a severe threat to the achievement of maximum employment,” he said.

Economists increasingly expect Fed officials to make three or four interest rate increases in 2022, moves that would make borrowing expensive for households and businesses and slow down spending and growth. That could, in turn, weaken hiring, keep wages from growing as swiftly, and hold down prices over time as people shop less.

This article originally appeared in The New York Times.