Addressing the Congress for the first time since the Fed carried its biggest rate increase in nearly three decades, Powell said that the Fed won’t stop raising rates until it sees evidence that inflation is indeed coming down.
“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,” he said. “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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Many economists thought inflation hit a high when it fell to an 8.3% annual rate in April. But then, May’s consumer price index report showed inflation rising again to 8.6%, the highest since 1981.
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Last week, the Fed announced that it would hike its interest rate target by three-quarters of a percentage point, to a range of 1.5% to 1.75%. The central bank typically raises rates by just a quarter of a percentage point, so the move signals that the Fed is now desperate to drive down prices.
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“Over coming months, we will be looking for compelling evidence that inflation is moving down, consistent with inflation returning to 2%,” Powell said. “We anticipate that ongoing rate increases will be appropriate; the pace of those changes will continue to depend on the incoming data and the evolving outlook for the economy.”
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Many economists and investors are concerned that, because the Fed will have to continue hiking rates aggressively, it could knock the economy into a recession.
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A survey conducted by the Financial Times in partnership with the University of Chicago found that nearly 70% of the 49 economists questioned said the most likely timing of a recession is sometime in 2023. Almost 40% said the National Bureau of Economic Research will declare a recession in the first half of next year, while 30% projected one will be declared in the second half.
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Another survey by the Conference Board found that 60% of business executives said they expect a recession, and 15% said they are already in a recession. Late last year, just 22% of CEOs thought that a recession was on the horizon.
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“Is a recession possible? Yes. Is it possible? Yes,” Brian Marks, executive director of the University of New Haven's entrepreneurship and innovation program, told the Washington Examiner this week. “We are certainly confronted with crosswinds in the economy and potentially headwinds, especially given the latest move by the Fed.”
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