The Federal Reserve said on Wednesday it would not flinch in its battle against the most intense breakout of inflation in the United States since the 1980s even if that means a “sustained period” of economic weakness and a slowing jobs market.
As he explained the logic behind the stiffest interest rate increases in roughly four decades, Fed Chair Jerome Powell was peppered with questions about whether the U.S. economy was in or on the cusp of a recession – a notion he rejected because U.S. firms continue to hire in excess of 350,000 additional workers each month.
Fed chair Powell noted in his press conference that another unusually large interest rate rise might be needed in September but would depend on upcoming economic data, while he added that it will also likely be appropriate to slow increases at some point.
Economists have downgraded growth forecasts on the heels of data showing weakness in consumer spending, a tightening of financial conditions and a decline in US manufacturing activity.
Mortgage rates, which have doubled since the start of the year, are also cooling the housing market and some businesses are seeing lower demand.
The Fed’s decision about whether to deliver a third straight 75 basis point increase – or something different – will be guided by whether they see firm evidence of inflation beginning to abate, Powell said at a press conference following the central bank’s latest two-day policy meeting.
The lack of clear visibility into the future trajectory of the economy means the Federal Reserve can provide reliable guidance about where its policy is headed only on a “meeting by meeting” basis, Powell said.
Powell said the Fed wasn’t trying to create a recession and did not expect one, and also that we are not currently in one. He refused to categorically state how it would affect the Fed’s policy path if one materialized, Shapiro said.
The Fed chairman said there was still a path to bring inflation down while sustaining a strong labor market.
“We continue to think that there is a path [to a soft landing]. We know the path has clearly narrowed…and may narrow further,” he said.
Powell said the Fed is determined to bring inflation down, and this likely means a period of “below-trend economic growth and some softening in the labor market conditions. “
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