Federal Reserve Chair Jerome Powell, in recent testimony before Congress, reiterated the central bank’s commitment to bringing inflation back down to its 2% target, even if it means further interest rate hikes. He acknowledged that inflation remains significantly above the target and that the labor market is still very tight, contributing to inflationary pressures. While emphasizing the progress made in slowing inflation, Powell stated that the Fed expects more rate increases will likely be necessary.
He addressed concerns about the potential for a recession, stating that while a soft landing is still possible, it has become less likely. The impacts of the banking sector turmoil earlier in the year are expected to tighten credit conditions and weigh on economic growth. Powell also highlighted the significant risks to the outlook due to these credit tightening effects and geopolitical events.
Furthermore, Powell discussed the Fed’s balance sheet reduction, which is continuing at a steady pace. He emphasized that the Fed’s decisions will be data-dependent, carefully monitoring economic indicators to assess the appropriate path for monetary policy. While acknowledging the pain that tighter monetary policy can inflict, he underscored the necessity of controlling inflation to achieve a sustainable economy.
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