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Fed Committed to Tightening Path to Rein in Inflation, Powell Says

Economy May 17, 2022 02:48PM ET
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© Reuters.

By Yasin Ebrahim

Investing.com -- Federal Reserve Chairman Jerome Powell said Tuesday there was broad support among Fed members to raise the Fed's benchmark rate by half a percentage point at the next two meetings to curb inflation.  

While the Fed can't control the supply issues driving up inflation, the U.S. central bank "has a job to do" to reduce demand, Powell acknowledged in a WSJ interview.

"There is an imbalance in the economy broadly, between demand and supply," Powell said. "We can't really affect supply...our policies don't don't work on [supply issues], but we have a job to do on demand," Powell said. 

Restoring balance in the labor market by curtailing growth will be key to restoring price stability, which Powell described as the "bed rock" of the economy. 

"I would, for example, point to the labor market where there's more demand for workers than there are people available to work by a substantial margin. Wages are moving up, which is a great thing, but they're moving up at a pace that is not consistent with 2% inflation," Powell added.

Earlier this week, Goldman Sachs said it believes that the current pace of rate hikes priced into the market was enough to restore balance in the labor market as financial conditions continue to tighten. 

"We think that the rate hikes that are currently priced into financial conditions are in the ballpark of what is ultimately needed to restore balance to the labor market and cool wage and price pressures," Goldman Sachs said in a note. "We therefore expect that the recent tightening in financial conditions will persist, in part because we think the Fed will deliver on what is priced."

The Fed chief said the U.S. central bank was prepared to stay the course on rate hikes until it was clear that inflation was abating. 

"We need to see inflation coming down in a convincing way...until we see that, we will keep going [with rate hikes]," Powell said, adding that the U.S. central bank "wouldn't hesitate" to go beyond the neutral rate -- the rate that neither slows or grows the economy -- if needed to achieve price stability.   

Many fear, however, the path to reducing growth just enough to rein in inflation without tipping the economy into recession is narrowing. 

But Powell believes a "soft-ish" landing remains a possibility, supported by a strong labor market that could, if growth slows, withstand a rise in the unemployment rate.

"You'd still have a quite a strong labor market. If the unemployment rate were to move up a few ticks...there's a number of plausible paths to having a soft-ish landing," Powell said. "Achieving price stability is an unconditional need and something we have to do because really the economy doesn't work for workers, for businesses or anybody without price stability."

Fed Committed to Tightening Path to Rein in Inflation, Powell Says
 

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Comments (21)
Trumpster Rocks
Trumpster Rocks May 18, 2022 12:24AM ET
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Moderators didn't approve my last message so i will put nothing in this one ok? Where is Elon when you need him? Buy this one too Elon.
Trumpster Rocks
Trumpster Rocks May 18, 2022 12:23AM ET
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The only reason the market moved up the last 3 days so vastly was the Market makers pushing the algo's up with the help of Whales of the market. Such total BS! The market should be in a spiral but no let's artificially prop it up for the election and the Hedge fund managers...and they say there is no manipulation in the markets? Guess who says that? The 1% of the world manipulating the markets day in and out.
Steven Jacobs
Steven Jacobs May 17, 2022 11:53PM ET
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Talk about flying by the seat of your pants. Who’s decision was it to keep JP around? We should have booted his ***
Chris Hall
Chris Hall May 17, 2022 11:53PM ET
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reduce demand ... !!! the wealth in this country top percentage consumes like a blackhole in the center of a galaxy!
Murali Krishna
Murali Krishna May 17, 2022 10:29PM ET
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Finally Fed will panic and do at least one.75 or 1.0 before they reach 5-6% target rate
Discover FIN
Discover May 17, 2022 10:05PM ET
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Hope they don't overdo it. There's no need to smash the economy twice.
Ro Br
Ro Br May 17, 2022 7:49PM ET
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Oh ya the transitory inflation
FMGK Blue
FMGK Blue May 17, 2022 7:39PM ET
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For the time being the data privés him right... 3.6% Unemployment rate and strong Retail Sales yesterday... The more people are at work the more they buy and consume. They can hike without affecting growth as long as jobs follow. They will stop when the unemployment rate ticks up again.
Forex Harbingers
ForexHarbingers May 17, 2022 7:37PM ET
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To anyone trying in any way to compare Japans economic conditions to US current situation should be aware of this fact. Japan's PM correctly and diligently warned all of their citizens through several national broadcasts to protect their investments and prepare for harder time BEFORE they passed their record stimulus package. What did the US do? Both Dems and Fed lied and said there was nothing to worry about, and continued to lie about the economic conditions until they couldnt lie anymore. And the only party that was warning people? Yes! The absolutely loathed and detested Republicans. Remember how much Don Lemon "roasted" Tucker Carlson because Tucker was warning of what was going to happen because of inflation and that it was unavoidable because of the non action from the Fed. I respect Japans handling of their situation, they DIDNT lie to their citizens.
Chris Hall
Chris Hall May 17, 2022 7:37PM ET
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minute you said tucker carlson we already know... back to truth social you go
Forex Harbingers
ForexHarbingers May 17, 2022 7:37PM ET
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What the ******is truth social? Is that some new social platform because of other over zealous social platforms? Sorry, I dont have any of those platforms.
Rubber Necker
Rubber Necker May 17, 2022 7:21PM ET
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Now we're supposed to believe him?
 
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