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Powell says Fed will fix inflation, calls price stability 'bedrock' of economy

EconomyMay 12, 2022 05:57PM ET
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3/3 © Reuters. FILE PHOTO: A person pushes a shopping cart in a supermarket in Manhattan, New York City, U.S., March 28, 2022. REUTERS/Andrew Kelly 2/3

By Howard Schneider and Ann Saphir

WASHINGTON (Reuters) -Calling stable prices the "bedrock" of the economy, Federal Reserve Chair Jerome Powell said on Thursday the U.S. central bank's battle to control inflation would "include some pain" as the impact of higher interest rates is felt, but that the worse outcome would be for prices to continue speeding ahead.

"We fully understand and appreciate how painful inflation is," Powell said in an interview with the Marketplace national radio program, repeating his expectation that the Fed will raise interest rates by half a percentage point at each of its next two policy meetings while pledging that "we're prepared to do more" if data turn the wrong way.

"Nothing in the economy works, the economy doesn't work for anybody without price stability," Powell said. "We went through periods in our history where inflation was quite high ... The process of getting inflation down to 2% will also include some pain, but ultimately the most painful thing would be if we were to fail to deal with it and inflation were to get entrenched in the economy at high levels, and we know what that's like. And that's just people losing the value of their paycheck."

With "perfect hindsight," Powell said, it "would have been better" to have begun raising rates earlier than March of this year, given inflation began a sharp turn higher in 2021.

After using aggressive monetary policy to support the economy through the COVID-19 pandemic, the Fed approved a quarter-percentage-point rate increase in March, but some analysts believe policymakers have fallen too far behind to curb price increases without the sort of sharp rate hikes that might cause a recession.

Powell said he believes the country can avoid a serious downturn.

But on the same day that the Senate confirmed him to a second four-year term as Fed chief in a bipartisan 80-19 vote, Powell also made the central bank's priorities clear.

Above all else, "we can't fail to restore price stability," he said.

The U.S. economy is facing its toughest inflation problem since the 1970s and early 1980s, when prices at one point rose at an annual rate of 14.5% and then-Fed chief Paul Volcker used punishing interest rates to twice throw the economy into recession. The unemployment rate climbed above 10%.

Powell has paid frequent homage to Volcker's commitment to beating inflation, while also saying he still hopes to avoid the sharp tradeoffs that Volcker used to bring prices under control.

While inflation is not approaching Volcker-era levels, the quick run-up in the cost of food, gas, housing and other daily staples has become a politically explosive issue for President Joe Biden's administration. Consumer prices in April were 8.3% higher than a year ago.

'FEEL THAT PAIN'

Interest rates are rising sharply as a result of the policy steps already taken by the Fed, with the rate on a 30-year fixed mortgage jumping from less than 3% last year to more than 5%, and volatile stock markets wiping out trillions of dollars in wealth that will likely prompt some consumers to spend less - and curb inflation in the process.

"If you're going to use monetary policy to get inflation under control, what you got to do is to tighten up on the consumer to reduce spending. Certain industries, most notably housing, are going to feel that pain. You're going to have mortgage rates over 6%. It's going to make it harder for potential homebuyers to buy," said Stan Shipley, a strategist at Evercore ISI.

Biden now has filled the top two Fed jobs and seen two of his other appointees confirmed to the central bank's seven-seat Board of Governors. The president made clear this week he was giving them full sway to try to lower inflation.

"Tackling inflation is my top domestic priority," the Democratic president said after Powell's Senate confirmation. The Fed "will bring the skill and knowledge needed at this critical time for our economy and families across the country."

Powell, who opened a news conference after last week's policy meeting by saying he wanted to "restore price stability on behalf of American families," used the radio interview on Thursday to amplify that broad message to the public.

Powell says Fed will fix inflation, calls price stability 'bedrock' of economy
 

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Comments (29)
Banker analysts System ICBC
Banker analysts System ICBC May 13, 2022 3:27AM ET
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one thing will solve this... do not raise interest rate . make it zero
Tre Hsi
Tre Hsi May 13, 2022 3:27AM ET
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ahhh, I see you are from the Trump-Erdogan school economics, keep interest rate no matter how bad the inflation rate is...........on a side note, Turkey's inflation rate is now closing to 70% with Erdogan refusing to allow his central banker to increase interest rate for the last 2 years
Chinsect Stomper
Chinsect Stomper May 13, 2022 1:23AM ET
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Raise rates faster to get the pain over with and ease them back down stimulate growth.
Banker analysts System ICBC
Banker analysts System ICBC May 13, 2022 1:23AM ET
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you mean raising rates faster next month will stimulate economy? I think no
marlow seay
marlow seay May 12, 2022 11:33PM ET
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he turn the printers on
Larry Langley
Larry Langley May 12, 2022 11:18PM ET
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could have stopped buying bonds in 2021 then to avoid the mess of holding and selling as you increase interest rates.Why did you ever buy corporate bonds of companies that had stable wealth?Your pushing us back in many areas to 2010. Look at Ford for example.People forget the Fed is Bankers and Hedge Funds (Capital Ventures). No true economists or real world knowledge of how things work.All your old data as a guide was when companies kept their supply chain inside their countries for access.You busted Unions to end strikes. What do you think is happening now with the supply chain? Same and zero can be done about it.
Kaushal Shah
Kaushal Shah May 12, 2022 10:10PM ET
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anything? what are you all up to?
marlow seay
marlow seay May 12, 2022 10:10PM ET
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back to QE
John Avenetti
John Avenetti May 12, 2022 9:25PM ET
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total and complete baloney
John Lakran
John Lakran May 12, 2022 9:02PM ET
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Raise rates to generate a recession, then drop rates again to stimulate growth and get out of recession. Rinse and repeat but in another year we will be talking about dropping rates again. Oil and money flow into oil is the enemy feeding inflation once that is fixed inflation will tank. Diesel has doubled since January does anyone really wonder why inflation isn't going down? Oil is used in literally every single step of our economy from production farming to manufacturing to shipping to delivery and finally for pickup and enjoyment. Farmers fuel cost doubled, energy use spiked, transportation fuel doubled, fuel to pickup up 50%+ They can't remove that piece for the inflation numbers
Jurgen Daub
Jurgen Daub May 12, 2022 9:02PM ET
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well, qand who is supplying the oil? sure not the FED
Shadoe Stern
Shadoe Stern May 12, 2022 9:02PM ET
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Nah we going to have rate increases at least till end of 2023 if not further out. We are not slowing down one bit cpi and ppi both higher than they expected and will continue too until consumers stop spending and racking up on credit cards. Recession dont just end in a year it will be a long process with this administration.
Banker analysts System ICBC
Banker analysts System ICBC May 12, 2022 9:02PM ET
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does that mean American oil company and Canadian .. let's not forget BP ... shell ..... others ..Hage to lose always as they lost past 10 years alot of money apportutinity? and didn't make profit
ZS Beck
ZS Beck May 12, 2022 8:51PM ET
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Biden and Powel should be transitory to creating this mess. They need to retire today and move to Zimbabwe. Goodbye
Jurgen Daub
Jurgen Daub May 12, 2022 8:51PM ET
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i hear all the smart guys knowing better without saying how to do better. look around the world, don't think any of the 180 countries on the planet is doing better. the US is not an island.
Tre Hsi
Tre Hsi May 12, 2022 8:51PM ET
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just to point out that Powell was nominated by President Orange
jonathan seagull
jonathan seagull May 12, 2022 8:26PM ET
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What? His bank produces zero oil, zero wheat, zero egg, and zero credibility.
Andrew Allen
Andrew Allen May 12, 2022 7:39PM ET
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love how the 2% ceiling has become the target. soon it will be their floor. We will never see stable prices again which would be 0% inflation
Jurgen Daub
Jurgen Daub May 12, 2022 7:39PM ET
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0% again, don't remember there ever was such a thing in the US.
Andrew Allen
Andrew Allen May 12, 2022 7:39PM ET
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1800 to 1900, goods prices reduced 50%, an average of -.5% inflation per year, an admirable goal
Ron Cole
Ron Cole May 12, 2022 7:39PM ET
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We were near zero for many many years before we came off the gold standard in 1971. We need to put a brake on the printing presses, dramatically reduce spending, drill for oil, lower taxes, bring manufacturing back to the US, and put people back to work making things again. Put China in the rear view mirror.
 
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