confirmed Federal Reserve Chairman Jerome Powellhis intention to bring down inflation, said on Tuesday that he would support an increase in interest rates until prices begin to fall toward a healthy level.
“If this involves exceeding normal and widely understood levels, we will not hesitate to do so,” the central bank chief added to the Wall Street Journal.
He continued, “We will use all our tools until we feel that we are in a place where we can say that the financial conditions are appropriate, and we see inflation going down.”
Earlier this month, the Fed raised benchmark borrowing rates by half a percentage point, the second increase for 2022, when inflation hits a 40-year high.
After this increase, Powell said that similar moves of 50 basis points are likely to come in the following meetings as long as economic conditions remain similar to what they are now.
On Tuesday, Powell reiterated his commitment to bringing inflation back to the Fed’s 2% target, warning that that may not be easy and could come at the cost of an unemployment rate of 3.6%, just above the lowest level since the late 1960s.
He said, “You still have a strong labor market, even if unemployment rises a few points.. There are a number of reasonable paths to a soft landing,” stressing that the Fed’s job is not to solve the problems, but rather to solve them.
The US economy contracted growth at a pace of 1.4% in the first quarter of 2022, largely due to ongoing supply-side constraints, the spread of the Corona-Omicron variable, and the war in Ukraine.
However, tighter monetary policy has heightened concerns about a sharp deflation and triggered a massive sell-off on Wall Street.
In addition to the 75 basis point interest rate hike, the Fed has also halted its monthly bond-buying program, also known as quantitative easing, and will begin disposing of the $9 trillion in assets that have been added starting next month.
Powell said he remains hopeful that the Fed will be able to achieve its inflation targets without hurting the economy.
He added that “there may be some pain involved in restoring price stability,” but stated that the labor market must remain strong, with low unemployment and higher wages.
For his part, CEO of Zilla Capital, Wael Ziada, said that raising the US interest rate by 75 points is more expected than raising the US interest rate by 50 points.
Ziada added in an interview with “Al Arabiya”, that expectations of raising interest rates by 75 basis points are reinforced by inflation data.
He explained that the US Federal Reserve is facing a split within its board of directors due to the extensive criticism from the business community and ordinary citizens.
He stated that these criticisms look at how the Federal Reserve has faced the crisis, and all criticisms focus on the fact that the Federal Reserve did not act quickly enough, and therefore the internal pressures are “great.”
Ziadeh believes that raising interest rates by 1% is now a possibility, and that there will be expanded policies in the coming period.