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Fed Chair Powell says rate hikes, tighter policy will be needed to control inflation


Jerome Powell, the Chairman of U.S. Federal Reserve Board, addresses the Senate Banking, Housing and Urban Affairs Committee, Capitol Hill, Washington, U.S.A, on January 11, 2022.

Reuters| Reuters

Federal Reserve Chairman Jerome PowellWith a clear path towards a second term as the head of the central bank’s governor, he declared Tuesday that the U.S. economic situation is healthy and requires tighter monetary policies.

Part of his confirmation hearingPowell told the U.S. Senate Committee on Banking, Housing and Urban Affairs that he expected a number of interest rate rises in this year. along with other reductions in the extraordinary helpThe Fed provided assistance during the Pandemic Era.

“As we move through this year … if things develop as expected, we’ll be normalizing policy, meaning we’re going to end our asset purchases in March, meaning we’ll be raising rates over the course of the year,” he told committee members. “We will allow our balance sheet to run-off at some point, perhaps in the latter part of the year. That’s the only way to normalize policy.”

During the speech, he made these remarks a 3½-hour sessionThis included praise for Fed’s economic management as well as criticism of perceived ethical failings by central bank officials. Some Republican Senators were also concerned that the Fed may be straying too far from its goals of price stability, full unemployment and oversight banking.

Powell was eventually confirmed by the Senate. Both Sherrod Brown (D-Ohio) and Patrick Toomey (Pennsylvania), the Chairman of the Committee, said that they would support President Joe Biden’s nomination. D-Mass. Sen. Elizabeth Warren has indicated that she will not support the nomination. after calling Powell “dangerous”At a hearing in the last year.

Both sides were asked questions about inflation. running at a close to 40-year high. The Fed declared the rise “transitory” in 2021. They have now reacted to inflation. expected to raise rates three or four timesThis year, in quarter-percentage point increments.

Inflation is controlled by higher interest rates. They slow down money flow, which was running quickly through the economy because the Fed and Congress combined have provided more than $10 trillion in stimulus.

Powell stated, “If inflation continues at high levels for longer than we expect, then we may have to increase interest over time.” Powell said, “We will utilize our tools to recover inflation.”

Supporting jobs, fighting inflation

The Fed is also raising rates. tapering its monthly bond purchasesThe Fed’s balance sheet has grown to more than $4.5 billion since the outbreak. Officials have also indicated that they plan to start decreasing their balance sheet in the latter part of the year. This will likely be done by setting a monthly amount for proceeds, but the Fed could also sell assets.

Powell stated that the economic recovery is a result of a robust economy with strong job prospects and an increasing number of people. unemployment rate at 3.9% in DecemberHowever, the inflation rate is projected to be higher than 7% for the same period.

Powell stated that this is a clear indication that the economy doesn’t need or want the highly accommodating policies we have in place to address the aftermath of the pandemic. “We are going to move over the course this year towards a policy closer to normal. However, it will take a while to get back to the normal state we were in.

Powell faced questions about how the Fed missed its inflation call. He cited a number of issues, including the pandemic that has seen reduced supply chains and store shelves. These factors, along with rising prices, could be threatening the recovery.

He stated that if inflation becomes persistent and if high inflation levels become entrenched in the economy and peoples’ thinking then it will inevitably lead to a much more monetary policy. This could result in a recession that is bad for the workers.

Powell was also asked questions regarding a recent controversy involving the financial activities of several Fed officials at the same time that the Fed was about implement a number of rescue measures right before the declaration of the pandemic.

Fed Vice Chairman Richard ClaridaTuesday’s announcement: he is resigningHe was removed from office a few days before the expiration of his term after additional disclosures on his purchase and sale of equity funds. Presidents of regional Feds Eric Rosengren of Boston Robert Kaplan of DallasAfter similar disclosures, she resigned 2021.

Powell stated that the Fed would soon publish rules prohibiting similar activity without prior notice for 45 days.

He said that the old system had been in place for many decades, but suddenly became insufficient.