WASHINGTON (AP) – Federal Reserve Chairman Jerome Powell, who just won Senate confirmation for a second term earlier in the day, acknowledged for the first time Thursday that high inflation and economic weakness abroad could thwart his efforts to avoid causing a recession.
For weeks, Powell presented the Fed’s drive to raise interest rates as compatible with the so-called “soft landing” for the economy. In this scenario, the Fed will be able to tighten borrowing costs enough to cool the economy and curb inflation without going so far as to drive the economy into recession.
But in an interview with NPR’s Marketplace, Powell acknowledged that this balancing act – which many economists said doubted the Fed could achieve – could be undermined by economic slowdowns in Europe and China.
“Whether or not we can make a soft landing may actually depend on factors we don’t control,” he said. “There are huge events, geopolitical events happening around the world that will play a very important role in the economy next year.”
Such comments reflect less confidence in avoiding a recession than Powell said earlier. Just last week, he told a news conference: “I think we have a good chance of achieving a soft or soft landing or result.”
On Thursday, he said that slowing inflation to the Fed’s annual target of 2% – from the current 6.6%, according to the preferred measure of the central bank – “will include some pain, but in the end the most painful thing would be. if we fail to deal with it and inflation, we had to gain a foothold in the economy at high levels. “
European economies are suffering from high inflation, 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 supplies than the United States.
China’s austerity policies to block COVID have closed ports, hampering exports and slowing consumer spending in cities like Shanghai, where millions of Chinese have been largely confined to their homes for weeks.
In an interview with NPR, Powell also seems to have suggested that the Fed would consider at least raising the reference rate by an extremely high three-quarters if inflation shows no signs of easing in the coming months. Last week, the stock market initially rose when Powell seemed to drop the three-quarter increase.
Reiterating last week’s comment that it was likely a half-point increase in each of the Fed’s next two meetings in June and July, Powell added on Thursday: “If things go better than we expect, then we are ready to do less. If they get worse than we expect, then we are ready to do more. “
Asked if “do more” means a three-quarter increase, Powell said: “You’ve seen this committee adapt to the input and changing perspectives. And that’s what we’re going to keep doing. “
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