Powell Says Fed Will Raise Interest Rates Until Inflation Under Control: ‘There Could Be Some Pain Involved’
In an interview held during The Wall Street Journal’s Future of Everything Festival on May 17, Federal Reserve chairman Jerome Powell doubled down on his agency’s commitment to fighting inflation, but warned Americans of further rough patches ahead.
“Restoring price stability is an unconditional need. It is something we have to do,” Powell said. “There could be some pain involved.”
This public address comes a week after he was overwhelmingly confirmed for a second term as chair of the Federal Reserve in an 80-19 Senate vote. Despite enjoying bipartisan support, his leadership of the central bank will be tested by inflation, which reached a 40-year high of 8.5% in March before declining slightly to 8.3% in April.
Powell and the Federal Reserve board will continue to attempt to lower inflation through a series of interest rate hikes, even if it results in a temporary raising of the unemployment rate. April’s unemployment rate remained at 3.6%, just a hair above the half-century low of 3.5% before the pandemic.
“We know that this is the time for us to be tightly focused,” Powell said during the virtual interview. “We have both the tools and the resolve to get inflation back down.”
No less than seven interest rate increases have been hinted at this year, including a 0.25% hike in March (the first rate increase since 2018) and the 0.5% increase at the beginning of May (the largest increase in over 20 years). There is strong speculation that rates will increase in June and July, and that they will also be double-sized raises.
Some critics say the Fed was slow to respond to soaring prices — and that Powell and his colleagues believed high inflation to be a temporary result of the pandemic. The Russia-Ukraine war continues to compound the global supply chain disruptions, shipping problems and operating costs, as do lockdowns and unpredictable manufacturing and production output in China.
“In hindsight, it would have been better to raise rates earlier,” Powell said.
While some economists believe that inflation may peak soon, many feel this prolonged period of elevated inflation is a sure-fire path to an economic recession. Powell and the Federal Reserve are determined to tame inflation, however, the chairman himself has indicated that he would tolerate a recession to get out of this current cycle of runaway inflation.
On March 3, Powell was asked by Sen. Richard Shelby (R-Ala.) if he would follow the precedent of former Federal Reserve Chairman Paul Volcker, who brought upon recessions in the 1980s after increasing federal rates in an attempt to lower inflation. Chairman Powell stated, “I would hope history will record that the answer to your question is yes.”
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