Chairman of the Federal Reserve Jerome PowellJerome PowellBiden urges GOP to end blockade on Fed Biden picks: Inflation ‘steals’ benefits of strong economy Oil prices top 0 a barrel as war on Ukraine rages MORE will tell lawmakers on Wednesday that the central bank will likely raise interest rates later this month with inflation “well above” the central bank’s target range.
The Fed chief is set to tell members of the House Financial Services Committee that bank officials “expect it to be appropriate” to raise the base interest rate range from his current level of zero to 0.25%, according to prepared remarks released ahead of Powell’s appearance before the panel.
“We understand that high inflation imposes significant hardship, especially on those least able to afford the higher costs of essentials like food, shelter and transportation. We know that the best thing we can do to support a strong labor market is to promote a long expansion, and that is only possible in an environment of price stability,” Powell will say.
The Fed cut interest rates to near-zero levels in March 2020 as the emerging coronavirus pandemic derailed the global economy. The Federal Open Market Committee, the Fed’s monetary policy panel, is on track to raise interest rates following its March 15-16 meeting, almost two years after the day it cut rates at current levels.
Powell will highlight the rapid recovery of the US economy from the depth of the pandemic-induced recession, including the record gain of 6.7 million jobs in 2021 and economic growth of 5.5%. The Fed chief attributed the effectiveness of COVID-19 vaccines as well as substantial fiscal and monetary support deployed by the federal government in 2020 for the rapid rebound.
Even so, the speed of the recovery also fueled a rapid rise in prices as it ran into stubborn pandemic-related headwinds, Powell will note.
“As a result, employers are struggling to fill vacancies, an unprecedented number of workers are quitting to take new jobs, and wages are rising at their fastest pace in many years,” Powell will say.
“Demand is strong, and bottlenecks and supply constraints limit how quickly production can respond. These supply disruptions have been larger and longer lasting than expected, exacerbated by waves of the virus, and price increases are now spreading to a wider range of goods and services.
Russia’s invasion of Ukraine and the unprecedented financial sanctions imposed on Moscow by the United States and its Western allies will also have unknown implications for the Fed’s fight against inflation, Powell will say.
“The short-term effects on the American economy of the invasion of Ukraine, the ongoing war, sanctions and future events remain very uncertain,” Powell will say.
“We will need to be nimble to respond to incoming data and changing insights.”