Powell: "Inflation Response Is Unconditional... Risk of Rising Unemployment Rate"

[Image source=Reuters Yonhap News]

[Asia Economy New York=Special Correspondent Joselgina] Jerome Powell, Chairman of the U.S. Federal Reserve (Fed), stated on the 23rd (local time) that the monetary tightening measures to reduce inflation could raise the unemployment rate, but the Fed's commitment to price stability is "unconditional."

Chairman Powell appeared before the House Financial Services Committee that day and said, "We need to bring inflation back to the 2% range through price stability," adding, "Without that, we cannot sustain a period of full employment where the benefits of economic growth are broadly shared." He emphasized repeatedly, "In the coming months, we will look for strong evidence that inflation is continuously declining back to the 2% level," and "We cannot fail at this (price stability). We really need to lower inflation."

Regarding the pace of future interest rate hikes, he reaffirmed the policy of closely monitoring key indicators and responding accordingly, stating, "It depends on new evidence and economic outlook." Chairman Powell said, "We have not experienced high inflation for a long time. This situation is unprecedented," and expressed difficulties, noting, "We must also recognize that in an uncertain environment, monetary policy may sometimes lead the economy in unexpected directions."

That day, Chairman Powell assessed that so far, the interest rate hikes have not had a significant impact on the labor market. However, he acknowledged that the Fed's future tightening measures, combined with companies' efforts to reduce costs, could raise the unemployment rate. He said, "Interest rate adjustments affect the overall economy through various channels," adding, "There is a risk that the currently record-low unemployment rate could rise." However, he also added that the labor market is currently very strong.

Regarding the so-called possibility of a soft landing, he admitted it is "increasingly challenging." He also cited the background of soaring oil and food prices and ongoing supply disruptions due to Russia's invasion of Ukraine.

On the topic of recession, he agreed with President Joe Biden's assessment that it is "not inevitable." The previous day, Chairman Powell appeared before the Senate Banking Committee and, when asked whether the Fed's interest rate hikes could lead to a recession, he said, "It is certainly a possibility."

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