On Thursday, Powell stressed, “I don’t think a recession is necessary.”
It is encouraging for the Fed that many households and businesses still expect inflation to fall again at some point. If this changes, a self-reinforcing vicious cycle could emerge that will only exacerbate inflation.
“Our whole framework is about keeping inflation expectations well and truly anchored,” he said on Thursday. Powell stressed the importance of bringing inflation to the Fed’s 2 percent target. “We mustn’t fail at that,” he said.
Powell spoke to Congress a week after the Fed raised its benchmark interest rate by three-quarters of a percentage point, the largest hike in nearly three decades. Fed policymakers are also forecasting a faster rate of rate hikes this year and next than just three months ago, with the benchmark interest rate expected to hit 3.8 percent by the end of 2023. That would be the highest level in 15 years.
Earlier Thursday, the Labor Department said fewer Americans filed for unemployment benefits last week, though slightly more than economists had expected. A solid job market is a relatively clear point in an otherwise flagging economy, with consumer sentiment and retail sales increasingly battered by inflation.
However, according to surveys by IHS Markit, companies are signaling slower-than-expected growth. While weak economic data is discouraging the broader economy, it could also mean that the economy is already slowing enough to allow the Fed to ease its planned rate hike.
Inflation remains stubbornly high, pushing consumers to pay higher prices for everything from groceries to clothing. This has forced people to shift their spending from bulky goods like electronics to necessities. Pressures were compounded by record-high gasoline prices, which show no signs of abating due to supply and demand disruptions.
Big tech and healthcare companies have done much of the hard work. Microsoft rose 1.7 percent and Johnson & Johnson rose 1.9 percent. Energy stocks fell on falling oil prices. Valero fell 8.8 percent.
Bond yields fell sharply. The yield on a 10-year Treasury bond, which helps set mortgage rates, fell to 3.06 percent from 3.15 percent late Wednesday night.