WASHINGTON (AP) — Federal Reserve Chair Jerome Powell said Tuesday that if the U.S. job market further strengthens in the coming months or inflation readings accelerate, the Fed might have to raise its benchmark interest rate higher than it now projects.
Powell’s remarks followed the government’s blockbuster report last week that employers added 517,000 jobs in January, nearly double December’s gain. The unemployment rate dropped to 3.4 percent, its lowest point in 53 years.
“The reality is if we continue to get strong labor market reports or higher inflation reports, it might be the case that we have to raise rates more”Powell told the Economic Club of Washington that Powell had said more than what is currently expected.
Powell acknowledged that price pressures have been decreasing and that he sees the aforementioned easing as a positive. “significant”This year’s inflation has fallen, but he warned that the central banks is only seeing a small decline. “the very early stages of disinflation. It has a long way to go.”
Even as the Fed has raised rates dramatically — by 4.5 percentage points, to a range of 4.5 percent to 4.75 percent, the fastest increase in four decades — the job market has remained surprisingly resilient. However, inflation slowed from 9.1 per cent in June to 6.5 per cent in December.
Even though the economy is healthy, the slowdown in inflation has raised expectations in the financial markets that it might be possible for the Fed to reach its goal, without raising borrowing rates high enough to trigger a severe recession.
Powell however dismissed the notion on Tuesday.
“There’s been an expectation that it’ll go away quickly and painlessly,”Powell spoke. “I don’t think that’s at all guaranteed.”
He warned instead that he was estimating, “it will take some time, and we’ll have to do more rate increases and then we’ll have to look around and see if we’ve done enough.”
Inflation has slowed at the same time that the unemployment rate has declined — a trend that defies most economic models. Powell explained that Powell believes this is due to the special nature of post-pandemic U.S. economies.
“It’s just confounded all sorts of attempts to predict what it will do,”He stated.
Powell’s remarks Tuesday followed the moderately optimistic note he struck at a news conference last week. Powell stated that high inflation has begun to decline and that he believes the Fed will be able to control it without creating a recession that would lead to mass layoffs.
However, the Fed chair warned that inflation could be high because of the strong labor demand.
Some Fed officials have already said the stronger-than-expected jobs report made it more likely that the central bank will have to keep raising its benchmark rate, which affects the rates on many consumer and business loans.
Neel Kashkari, president of the Federal Reserve Bank of Minneapolis, said Tuesday morning in an interview on CNBC that January’s outsize hiring gain showed that the Fed’s higher rates have so far had only a limited effect in slowing the economy.
“We need to raise rates aggressively,”Kashkari claimed, “to put a ceiling on inflation, then let monetary policy work its way through the economy.”
A government jobs report was released Friday that indicated that hiring and the economy were much healthier than Fed officials believed. Employers added 517,000 jobs in January, the report said, nearly double December’s gain, and the unemployment rate reached 3.4 percent, the lowest level in 53 years.
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