Jay Powell tries to allay recession fears, but warns of inflation surprises

Jay Powell is trying to allay fears of an impending recession, even as he warns that there could be further surprises in inflation.

The U.S. Federal Reserve chairman testified before the Senate Banking Committee on Wednesday that the economy can cope with significantly tighter monetary policy, as he emphasized the central bank’s Pledge to eradicate peak inflation in four decades.

But fears of a possible recession have become more pronounced in recent weeks as inflation The data was worse than expected.

“The U.S. economy is very strong and well positioned to respond to tighter monetary policy,” Powell In his prepared remarks, he emphasized the resilience of the U.S. consumer and labor market, with employment rising by an average of about 400,000 a month.

But he stressed the uncertainty affecting the outlook, moving beyond past comments, acknowledging that the road to a “soft landing” has become more challenging.

“Inflation has clearly risen unexpectedly over the past year, and more surprises are likely to come,” he warned.

“As a result, we need to be flexible with incoming data and changing outlooks, and we will try to avoid adding uncertainty to what is already an extremely challenging and uncertain time.”

The central bank implemented last week The biggest rate hike Raised the federal funds rate to a new target range of 1.50% to 1.75% since 1994 and expressed support for the most aggressive monetary tightening campaign since the 1980s.

Powell’s testimony came at a pivotal moment in the White House as it grapples with growing expectations of a sharp slowdown in growth ahead of the November midterm elections.Since then, many economists have into recession by next year.

“A recession is not inevitable,” U.S. President Joe Biden told reporters this week — a message shared by U.S. Treasury Secretary Janet Yellen and National Economic Council Director Brian Diess.

Fed officials have begun bracing for market participants to raise interest rates by at least 0.75 percentage point at their next meeting in July, estimating that the threshold the Fed needs to see “strong evidence” that inflation is slowing has yet to bear fruit.

Powell said future decisions on the Fed’s policy actions will be made “meeting-by-meeting” based on “upcoming data and the changing economic outlook.”

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