Jerome Powell, the chair of the Federal Reserve, stated that there is “no guarantee” that the central bank can rein in spiraling inflation without harming the labor market.
Washington, D.C. Jerome Powell, the chair of the Federal Reserve, stated that there is “no guarantee” that the central bank can rein in spiraling inflation without harming the labor market.
Powell reiterated his hope that the Fed can achieve a so-called “soft landing” by raising interest rates just enough to slow the economy and contain rising consumer prices without triggering a recession or sharply increasing the unemployment rate in his remarks on Wednesday at a European Central Bank forum in Sintra, Portugal.
“We think we can accomplish that. That is our goal, he declared. However, he claimed that the Russian invasion of Ukraine had complicated matters by impeding trade and raising the cost of food, gasoline, and chemicals.
It’s become more difficult, Powell added. The paths have become more congested.
Christine Lagarde, President of the ECB, echoed the “huge impact” “of energy shocks, which are reverberating across the globe but are strongly felt in Europe due to its reliance on Russian oil and gas. Additionally, she emphasized how close Europe was to the conflict in Ukraine and claimed that “energy was greatly overestimated.” “When the bank evaluates inflation.
The threat of inflation, which first surfaced just over a year ago, was sluggish to be acknowledged by the ECB and the Fed. They assumed that price increases were the short-term effect of supply chain hiccups as the economy quickly recovered from the devastating coronavirus recession that occurred in 2020.
But the rate of inflation kept rising. At its meeting on June 14–15, the Fed appeared prepared to raise its short-term benchmark rate by another half-percentage point, as it had done in March and May.
Then, the Labor Department reported that the greatest increase in consumer prices since 1981—an 8.6% jump—had occurred in May. In response, the Fed increased the rate by three-quarters of a percentage point, the largest increase since 1994.
Although Europe’s central bank lags behind the Fed, it said that it would hike interest rates in July for the first time in 11 years and once again in September to combat inflation, which is at an all-time high of 8.1% in the 19 euro-using nations. In a speech to kick off the ECB forum on Tuesday, Lagarde said the bank will increase rates gradually while keeping the door open to “stamp out” inflation should it rise more quickly than anticipated.
A recession could be triggered by increased rates, analysts are increasingly concerned.
Powell, however, emphasized the robust labor market, noting that the 3.6% unemployment rate is close to a half-century low and that the majority of households and businesses had sizable reserves.
The U.S. economy is generally well-positioned to withstand tighter monetary policy, he said.
Lagarde observed that the same was true in Europe.
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