Powell: The Fed will continue to raise interest rates until it gets inflation under control

WASHINGTON >> Chairman Jerome Powell today underscored the Federal Reserve’s determination to continue raising interest rates until there is clear evidence that inflation is steadily declining – an effort to big stakes that carries the risk of triggering a possible recession.

Increases by the Fed to its benchmark short-term rate typically, in turn, lead to higher borrowing costs for consumers and businesses, including for mortgages, auto loans and credit cards. The economy generally slows down as a result.

“What we need is a clear and convincing decline in inflation,” Powell told a Wall Street Journal conference. “And we’re going to keep pushing until we see that.”

The Fed Chairman, who was confirmed last week by the Senate for a second four-year term, suggested the Fed would consider raising rates even faster if price increases did not moderate.

“What we need to see,” Powell said, “is clear and compelling evidence that inflationary pressures are coming down and inflation is coming down. And if we don’t see that, then we need to consider acting more aggressively. If we see this, then we can consider moving to a slower pace.

Powell’s remarks on Tuesday followed other statements he made that indicated the Fed was implementing a series of rate hikes that could be the fastest credit crunch in more than 30 years.

At a meeting earlier this month, the Fed raised its key rate by half a point – double the usual increase – for the first time since 2000, to a range of 0.75% to 1%. And at a press conference after the meeting, Powell suggested that Fed officials would raise its rate by half a point at its June and July meetings.

The Fed chairman appeared indifferent on Tuesday to the sharp decline in the stock market over the past six weeks. The declines reflect Wall Street’s concern that the Fed’s efforts to rein in inflation, which has hit 40-year highs, could weaken the economy to the point of triggering a recession.

Interest rates across the economy have also risen steadily. They include the yield on the two-year Treasury bill, which Powell called a sign that Wall Street expects the Fed to continue to tighten credit to slow borrowing, spending and price increases.

“It’s been good to see financial markets react in advance” of the upcoming rate hikes, Powell said. “That’s what we need.”

The S&P 500, a broad stock index, has fallen about 15% from its January peak. This is just below the 20% drop that marks a bear market. Still, many economists say Powell is unlikely to let market turmoil alter the Fed’s course, given that inflation has reached such high levels and is causing hardship for millions of households.

Leslie M. Gill