"The clock is kind of running on how long will you remain in a low-inflation regime ... The risk is that because of the multiplicity of shocks you start to transition into a higher inflation regime and our job is to literally prevent that from happening and we will prevent that from happening," Powell said at a European Central Bank conference.
While "there is a risk" the Fed slows the economy more than needed to control inflation, "I would not agree that is the bigger risk. The bigger mistake would be to fail to restore price stability."
“At the Fed, we understand the hardship high inflation is causing. We are strongly committed to bringing inflation back down, and we are moving expeditiously to do so,” the Fed chief said in remarks for the Senate Banking Committee. “We have both the tools we need and the resolve it will take to restore price stability on behalf of American families and businesses.”
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Along with showing resolve on inflation, Powell said economic conditions are generally promising, with a strong labor market and persistently high demand.
But Sen. Elizabeth Warren, D-Mass., cautioned Powell that the continued rate hikes could “tip this economy into recession” without curbing inflation.
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“You know what’s worse than high inflation and low unemployment is high inflation and a recession with millions of people out of work, and I hope you’ll reconsider that before you drive the economy off a cliff,” she said. Though Powell said he believes the economy is strong now, he acknowledged a recession could happen.
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“It’s certainly a possibility,” he said. “It’s not our intended outcome at all, but it’s certainly a possibility, and frankly the events of the last few months around the world have made it more difficult for us to achieve what we want, which is 2% inflation and still a strong labor market.”
Achieving a “soft landing,” in which policy tightens without severe economic circumstances such as a recession, will be difficult, he added. “It is our goal. It is going to be very challenging. It has been made significantly more challenging by the events of the last few months, thinking here of the war and commodities prices and further problems with supply chains.” Powell said. “The question of whether we’re able to accomplish that is going to depend to some extent on factors that we don’t control.”
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