The Federal Reserve concluded its two-day meeting last Wednesday by announcing a further 75 basis points of interest rate hike to a new target range of 3% to 3.25%, indicating that it will continue raising the interest rate above the current level.
According to the weekly money markets report issued by the National Bank of Kuwait, Federal Reserve Chairman Jerome Powell has long been emphasizing that the US central bank can curb entrenched inflation without pushing the world’s largest economy to the brink of recession. We are trying to create a state of stagnation, and we do not see the need for that.” But after the Fed’s announcement, that optimism evaporated as Powell delivered one of his darkest comments yet on economic growth prospects with the most aggressive monetary tightening campaign in place since 1981.
Powell also confirmed the message he delivered at the Jackson Hole symposium, which was the most stringent since taking over the presidency of the Federal Reserve.
The Federal Open Market Committee, which confirmed the consensus of all policy makers on the decision to raise interest rates, said that it “expects that a further rate hike in the target range will be appropriate.”
Powell refused to rule out the world’s largest economy entering a recession, and in fact seemed unsure how severe a recession would be caused by the Federal Reserve’s efforts to curb inflation.
“We have to put inflation behind us,” he said. I wish there was a painless way to do it, but there isn’t.” Economists interpreted this message as a tacit acknowledgment that Powell’s previously stated goal of a “soft landing” in which the central bank could cool the economy without causing excessive job losses has now become unrealistic.
The Federal Reserve Chairman acknowledged that the odds of this outcome “dwindle” the longer the restrictive rates continue. Powell warned that “the chances of a soft landing are likely to diminish” because monetary policy should be “more restrictive or restricted for a longer period.”