WASHINGTON – Federal Reserve Chair Jerome Powell said there was “no guarantee” the central bank could contain rapid inflation without hurting the job market.
Speaking Wednesday at a European Central Bank forum in Sintra, Portugal, Powell reiterated his hope that the Fed could achieve a so-called soft landing — slowing the economy and curbing consumer price growth without triggering a recession and rapid growth. to raise interest rates. rise in the unemployment rate.
“We believe we can do it. That’s our goal,” he said. But the Russian invasion of Ukraine, he said, has complicated the task by disrupting trade and raising prices for food, energy and chemicals.
“It was tough,” Powell said. “The streets have become narrow.”
ECB President Christine Lagarde reiterated the “big impact” of the energy shocks, which are spreading across the world but are being felt acutely in Europe due to dependence on Russian oil and natural gas. She also pointed to Europe’s proximity to the war in Ukraine and that the bank had “grossly underestimated energy” in its assessment of inflation.
The ECB and the Fed have been slow to recognize the threat of inflation, which only emerged a year ago. He believed rising prices were a temporary result of a supply chain malfunction as the economy rebounded from the brief but devastating coronavirus slowdown in 2020 with unexpected momentum.
But inflation continued to rise. The Fed raised its short-term interest rate in March and May and appeared poised for another half a percentage point hike at its June 14-15 meeting.
Then the Labor Department reported that consumer prices rose 8.6% year-on-year in May – the biggest rise since 1981. The Fed responded by raising the rate to three-quarters percent – the biggest rise since 1994.
The European Central Bank is behind the Fed but said it would raise rates for the first time in 11 years in July and again in September to target inflation of a record 8.1% in 19 countries using the euro. Speaking at the opening of the ECB’s forum on Tuesday, Lagarde said the bank would continue raising interest rates gradually but would keep open the option to “inflate” inflation if it grew faster than expected.
Economists are increasingly concerned that higher interest rates could push the economy into recession.
However, Powell pointed to a strong labor market — the unemployment rate has stood at nearly half a century’s 3.6% — and noted that most households and businesses have healthy savings.
“Overall,” he said, “the US economy is well positioned to withstand tighter monetary policy.”
Lagarde noted that the same applies to Europe.
Powell Post: “No Guarantee” Fed Can Control Inflation, Additional Jobs first appeared at The Associated Press.