Controlling inflation will not be painless, warns Fed Chairman

The fight against inflation, which is in the United States at its highest for 40 years, risks weighing on economic growth and employment, warned Thursday the president of the American central bank (Fed), just confirmed for a second term by the Senate.

Bringing inflation back to 2% (the Fed’s target, editor’s note) will not be painless, said Jerome Powell in an interview with Marketplace, the daily economics program of public radio NPR.

But, he said, the most painful would be if it failed to counter it and inflation remained entrenched in the economy at high levels.

The head of the Fed had until now said he was confident that the institution would succeed in slowing inflation without slowing down the economy. We have the tools, he hammered.

Our objective, of course, is to bring inflation down to 2% without the economy going into recession, or maintaining a fairly strong labor market, he stressed.

But things could turn out to be more complicated than initially anticipated: whether or not we can execute a soft landing may actually depend on factors beyond our control.

A soft landing simply means bringing inflation down to 2% while maintaining a strong labor market. And it’s quite difficult to achieve at the moment, he admitted.

The Fed began raising rates to dampen demand, first by a quarter of a percentage point in March and then by half a point on May 4, the biggest hike in more than 20 years.

Key rates are now between 0.75 and 1.00%.

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And new increases are expected until the end of the year.

If the economy evolves roughly as expected, it would be appropriate for there to be additional hikes of 50 basis points (half a point, Editor’s note) during the next two meetings, he underlined, specifying that if things are going better than expected, we are prepared to do less. If it’s worse than expected, we’re ready to do more.

Inflation rose in March to 6.6% over one year, its highest level since 1982, according to the PCE index, favored by the American Central Bank.

Data for April of another index, the CPI, on which pensions are indexed in particular, were published on Wednesday, and showed a very slight slowdown, 8.3% over one year, against 8.5% in March.

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