WASHINGTON (AP) — Federal Reserve Chairman Jerome Powell just won Senate confirmation for a second term Earlier in the day, he conceded for the first time on Thursday that high inflation and economic weakness overseas could thwart his efforts to avoid a recession.
For weeks, Powell has portrayed the Fed’s efforts to raise interest rates as consistent with a so-called “soft landing” for the economy. In this scenario, the Fed would be able to lower borrowing costs enough to cool the economy and curb inflation without going so far as to plunge the economy into recession.
But in an interview on NPR’s Marketplace, Powell conceded that this balancing act – which many economists doubt the Fed can achieve – could be undermined by the economic slowdown in Europe and China.
“The question of whether or not we can do a soft landing — that may actually depend on factors that we don’t control,” the Fed chair said. “There are huge events, geopolitical events happening around the world that are going to play a very important role in the economy over the next year or so.”
Such comments reflect less confidence in avoiding a recession than Powell has previously expressed. Just last week, he said at a press conference: “I think we have a good chance of a soft or a soft landing or a soft result.”
On Thursday, he said that slowing inflation to the Fed’s annual target of 2% — from the current 6.6% under the central bank’s preferred measure — “will also bring some pain, but ultimately it would be most painful if we would fail to deal with it and inflation should take root in the economy at high levels.”
Europe’s economies are suffering from high inflation, exacerbated by Russia’s invasion of Ukraine and the resulting rise in gas and oil prices. Europe was far more dependent on Russian energy supplies than the United States.
China’s strict COVID lockdown guidelines have closed ports, hampered exports and slowed consumer spending in cities like Shanghai, where millions of Chinese have been largely confined to their homes for weeks.
In his interview with NPR, Powell also appeared to imply that the Fed would at least consider raising interest rates by an extremely high three-quarters point if inflation shows no signs of easing in the coming months. Last week, the stock market initially rallied as Powell appeared to take a three-quarter-point rate hike off the table.
After repeating his comment from last week that a half-point hike is likely at each of the next two Fed meetings in June and July, Powell added on Thursday, “If things are better than we expect, then they are.” we willing to do less . If they do worse than expected, then we are ready to do more.”
When asked if “doing more” meant a three-quarter-point increase, Powell said, “You’ve seen this committee adapt to the data coming in and the evolving outlook.” And we will continue to do so.”