Interest Rates Will Continue to Rise Until Inflation Reduces

Interest Rates Will Continue to Rise Until Inflation Reduces – Jerome Powell

The chairman of the United States Federal Reserve, Jerome Powell has stated that he fully supports the increase of interest rates until prices reduce to a healthy level. He said this to Wall Street Journal in a live interview.


According to Powell, “If that involves moving past broadly understood levels of neutral, we won’t hesitate to do that,”. He continued by saying he will back the increase of interest rates till the Federal Reserve feels they are at a place where it can be said that the financial conditions are appropriate. Only then can they be assured that inflation is coming down.


Prior to this period, the Federal Reserve raised its borrowing rates benchmark by half its usual percentage point, which is the second time it has been increased in just a few months into 2022. Despite this, Powell has stated that his committee is working towards reducing inflation to the Fed’s 2% target. Although this seems like a commendable feat, the Fed chairman has warned that this feat will come at the cost of the unemployment rate surging to a 3.6 %


In the Fed’s defense, Jerome Powell stated that “You’d still have a strong labor market if unemployment were to move up a few ticks.” He continued by saying “I would say there are a number of plausible paths to have a soft as I said softish landing. Our job isn’t to handicap the odds, it’s to try to achieve that.”


He added that “there could be some pain involved in restoring price stability” but said the labor market should remain strong, with low unemployment and higher wages” Apparently, it appears achieving a reduction in inflation may come at a great cost for the nation. However, the United States Federal Reserve Chair is hopeful that the Fed will achieve its inflation reduction target without necessarily upsetting the financial aspect of the nation’s economy.


Meanwhile, in recent news, the Federal Reserve inflation target has been reduced to 4.9%, which may mean that prices are slowly but significantly easing down. In March, the Commerce Department had reported a slowing pace of 5.2% including personal consumption expenditures. The 0.3% reduction is an indication that Powell’s committee may be close to reaching their inflation goal of 2%.


Although the significantly lower level of inflation is a source of relief for the economy and the White House, the cost of gas is seemingly posing a problem. According to the AAA, gas prices have surged to more than 11% from last month.


So far the Fed has implemented two interest rate increases all of which total about 75 basis points. According to the Federal Reserve, there are still possibilities of more interest rate hikes, until they reach their target. While the nation can breathe a subtle sigh of relief, the gas hike means that there’s still work to be done.


In a recent statement, President Joe Biden acknowledged the Fed’s April report saying that “it was a sign of progress, even as we have more work to do.”


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