Fed Chairman says recession a ‘possibility’ amid inflation battle

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Federal Reserve Chairman Jerome Powell told lawmakers on Wednesday that a U.S. recession was a ‘possibility’ as he prepares an aggressive campaign to hike interest rates to contain prices that are rising at their own pace the faster for over 40 years.

Why is this important: Fears of a recession grew among some market watchers and economists as the Fed signaled it would be more aggressive in slowing the economy in a bid to control inflation.

What he says : To be clear, Powell said he doesn’t see the odds of a recession that high right now. He acknowledged that it was “definitely a possibility” but not something the Fed was trying to “provoke”.

  • “That’s not the intended outcome at all,” Powell said.
  • Echoing comments he made last week after announcing the biggest rate hike since 1994, Powell said a soft landing “has been made much more difficult by the events of the past few months”, referring to the Russian invasion of Ukraine, soaring commodity prices and the supply chain. challenges.
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Between the lines: Senators from both parties are skeptical of the Federal Reserve’s policies’ ability to stifle food and gas inflation. It was a recurring theme as Powell began two days of testimony to Congress on monetary policy.

  • This week’s hearings will hint at the kind of pressure Powell faces from lawmakers as their constituents grapple with nosebleed prices and growing recession risks.
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Here are two exchanges which illustrate the angst over the Fed’s role in fighting inflation:

  • Sen. Elizabeth Warren (D-Mass.): “Inflation is like a disease, and medications need to be tailored to the specific problem. Otherwise, you could make things worse. Right now, the Fed has no control over the main drivers of price increases.”
  • Sen. Mike Rounds (RS.D.): “The part of inflation that Americans are feeling today may not just be the core inflation that some of your tools are dealing with.”
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Between the lines: Democrats questioned Powell on whether the Fed’s moves to rein in inflation could tip the economy into a recession.

What to watch: Some Republicans piled on Powell, calling on the Fed to be too slow to react to inflationary pressures.

  • “While I am delighted that you have begun to take the drastic measures necessary to fix the American economy, these measures are long overdue and monetary policy remains too accommodative,” said North Carolina Senator Thom Tillis. .

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