Federal Reserve (Fed) Chairman Jerome Powell has begun presenting the Semi-Annual Monetary Policy Report, which will last two days in the United States Congress.
Speaking to the U.S. Senate Banking, Housing and Urban Affairs Committee on the first day of the presentation, Powell reiterated that the Fed is aware of the challenge posed by high inflation.
“We are strongly committed to reducing inflation and are moving quickly to do so,” said Powell.
Emphasizing that they have the determination to restore price stability, Powell noted that reducing inflation is critical to the sustainability of sound labor market conditions to the benefit of all.
“INFLATION HAS RAPIDLY INCREASED IN MANY FOREIGN ECONOMIES”
Pointing out that inflation continues to stay well above the long-term 2% target, Powell explained that demand is strong, supply constraints last longer than expected, and price pressures are spreading to a wide range of goods and services.
Claiming that the increase in the prices of crude oil and other commodities caused by Russia’s attack on Ukraine raised gasoline prices and created further upward pressure on inflation, Powell also added that the new type coronavirus (Covid-19) quarantines in China further reduced supply chain disruptions. He said it is likely to get worse.
“Inflation has risen rapidly in many foreign economies over the past year,” Powell said.
“FINANCIAL CONDITIONS MUST CONTINUE AT SLOW GROWTH”
Recalling that general economic activity slowed in the first quarter, Powell noted that the latest indicators showed that real gross domestic product (GDP) growth accelerated this quarter, with consumer spending remaining solid.
“The tightening of financial conditions we have seen in recent months should continue to slow growth and help better balance supply and demand,” said Powell. He said.
Stating that the labor market remains extremely tight, Powell said that while the demand for labor is very strong, the supply of labor remains under pressure.
Emphasizing that they are extremely alert to the risks posed by high inflation, Powell noted that their policies have adapted to the rapidly developing economic environment and will continue to do so.
“We will look for convincing evidence that inflation is falling”
Noting that the Federal Open Market Committee (FOMC) reiterated its expectation that continued interest rate hikes would be appropriate, Powell recalled that they also initiated the process of reducing the balance sheet.
“In the coming months we will look for convincing evidence of the decline in inflation, consistent with the return of inflation to 2%. Interest rates should continue to be raised. “We expect the pace of these changes to continue to hinge on incoming data and the evolving outlook for the economy.”
Stating that they will make their decisions from one meeting to another and that they will continue to convey their thoughts as clearly as possible, Powell noted that adopting appropriate monetary policy in an uncertain environment requires acceptance that the economy generally develops in unexpected ways.
“Inflation has clearly had an upward impact over the past year and there may be more surprises. So we will need to be agile in responding to incoming data and evolving prospects,” Powell said.
Reiterating his determination to take the necessary steps to ensure price stability, Powell said the US economy is very strong and well placed to cope with tighter monetary policy.