WASHINGTON (AP) – Federal Reserve Chairman Jerome Powell, who recently received Senate approval for a second term, on Thursday acknowledged for the first time that high inflation and economic weakness abroad could hamper his efforts to avoid a recession.
For weeks, Powell reflected the Fed’s drive to raise interest rates in line with the so-called “soft landing” for the economy. Under such a scenario, the Fed will be able to cut borrowing costs enough to cool the economy and curb inflation without going so far as to plunge the economy into recession.
But in an interview with NPR’s Marketplace, Powell acknowledged that this balance – which many economists said doubted the Fed could achieve – could be undermined by economic slowdowns in Europe and China.
“The question of whether we can make a soft landing or not – it may depend on factors that we do not control,” – said the Fed chairman. “There are huge events happening in the world, geopolitical events that will play a very important role in the economy in the coming year or so.”
Such comments reflect less confidence in avoiding a recession than Powell did before. Just last week he told a news conference: “I think we have a good chance of a soft or soft landing or result.”
On Thursday, he said a slowdown in inflation to the Fed’s annual target of 2% – from its current 6.6%, according to a central bank overwhelming measure – “would also include some pain, but ultimately the most painful would be if we will fail to fight this and inflation should have taken hold in the economy at a high level. “
Europe’s economy is suffering from high inflation, which is exacerbated by Russia’s invasion of Ukraine and the resulting jump in natural gas and oil prices. Europe was much more dependent on Russian energy than the United States.
China’s tough policy of closure in COVID has closed ports, hampering exports and slowing consumer spending in cities like Shanghai, where millions of Chinese have been severely restricted in their homes for weeks.
In an interview with NPR, Powell also suggested that the Fed would at least consider raising its base rate by an extremely large three-quarters of a point if inflation shows no signs of easing in the coming months. Last week, the stock market initially soared when Powell seemed to refuse to raise rates by three-quarters of a point.
Reiterating his comment from last week that at each of the next two Fed meetings, in June and July, Powell added on Thursday: “If things go better than we expect, we are ready to do less.” If they turn out worse than we expect, then we are ready to do more. “
Asked if it meant “doing more” an increase of three-quarters of a point, Powell replied: “You’ve seen how this committee has adapted to the incoming data and the prospects that are evolving. And that’s what we’re going to do next. “
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