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a recession is definitely a possibility, admits Fed boss

So far, Jerome Powell had always said loud and clear that he could achieve a soft landing for the economy.

US Federal Reserve (Fed) Chairman Jerome Powell admitted to Congress on Wednesday that a rapid rise in interest rates could cause a recession even if it is not the desired effect. “It’s definitely a possibilityMr. Powell replied during a Senate hearing to an elected official who was worried about the recessionary consequences of the Fed’s monetary policy. “This is not at all the desired effect but it is certainly a possibility.“, said the boss of the Fed. “And frankly, the events of the last few months around the world are making it more difficult for us to achieve what we want to do, get inflation back to 2% while maintaining a strong labor market.“said Jerome Powell. So far, the Fed has said loud and clear that it can bring the economy to a soft landing. But pressed by senators, Jerome Powell admitted that a soft landing was going to be “very difficult“.

This has been made much more difficult in recent months considering war, commodity prices and other issues with supply chains.“, he argued. He also noted that the tightness of the labor market was “notnot viable“. “There is a mismatch between supply and demand, with more job offers than applicants“, he explained.

An inflation rate of 8.6%

The question of whether we will succeed“to curb inflation without falling into recession”will depend to some extent on factors beyond our control“Added the chairman of the Fed. But he assured that there was still “ways to bring inflation down to 2% without causing such problematic consequences“. Price inflation hit a 40-year high in the United States at 8.6% year on year. “I know higher interest rates are painful but it’s the tool we have to moderate demand», So consumption and price increases, he pleaded. In his speech, Jerome Powell also assured that the American economy was sufficiently “solid and well placed to face a monetary tightening“. He recalled that the Fed had raised key rates in the last three meetings, leading to a 1.5 percentage point increase in the cost of overnight credit. This higher cost of money affects all loans, from mortgages to consumer loans to business loans. The Monetary Committeeexpects rate hikes to continue“, he warned and their rhythm “will depend on economic data“.

We will make our decisions meeting by meeting“, further indicated the boss of the Fed, assuring that the communication of the Central Bank would be “as clear as possible“. At its last meeting in mid-June, the Monetary Committee (FOMC) surprised the markets by deciding at the last minute to tighten the monetary screw by 75 percentage points, an increase not seen for almost 28 years. “We will strive to avoid adding uncertainty in what is already an extraordinarily difficult and uncertain time.“, he promised. But “in a rapidly changing economic environment, our policy has adapted and will continue to do so“, he explained.

SEE ALSO – United States: the Fed raises its rates by three quarters of a percentage point

A still “very solid” economy

Returning to the causes of inflation, Jerome Powell pointed out “soaring crude prices as a result of Russia’s invasion of Ukraine” and “Covid-19 lockdowns in China“.

Inflation has also risen rapidly in many foreign economies“, he insisted. It was just announced on Wednesday at 9.1% over one year in May in the United Kingdom. Jerome Powell portrayed an American economy still “very solid“. “Indicators suggest real gross domestic product growth accelerated this quarter, with consumer spending remaining strong“, he assured, after a decline in GDP in the 1st quarter. On the other hand, he underlined a slowdown in business investment and noted the cold snap that is gripping the real estate market “partly reflecting higher mortgage rates“. Acknowledging that the strength of inflation had taken monetary authorities by surprise, he warned that “other surprisescould intervene, referring in particular to China’s zero tolerance policy towards Covid-19 which could cause new confinements and therefore new difficulties in the supply chain.

SEE ALSO – In the United States, the Fed makes the largest rate hike since 2000 to counter inflation




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