![]() "The Federal Reserve and this administration failed the American people by not heeding these warnings a year ago, and not acting sooner to address it," said Sen. Some Republicans on the committee faulted the Fed for waiting too long to crack down on inflation, and blamed the $1.9 trillion dollar relief bill passed by Congressional Democrats last year for fueling consumer demand. Mortgage rates have climbed sharply in anticipation of the Fed's moves, and that's beginning to weigh on both home sales and home construction. The Fed's benchmark rate has jumped to 1.6%, and additional rate hikes are expected in the coming months. But they're not our intent."Īfter keeping interest rates near zero for the first two years of the pandemic, the Fed is now moving aggressively to increase borrowing costs in a bid to tamp down demand. And there's risk that weaker outcomes are certainly possible. "Monetary policy is famously a blunt tool. Businesses are in good shape," Powell said. Powell argued that predicting recessions is notoriously difficult, but added that he doesn't see the risk as particularly high. Economists surveyed by the Wall Street Journal put the odds of a recession in the next 12 months at 44%, up from 28% in April. "But we do think it's absolutely essential that we restore price stability, really for the benefit of the labor market as much as anything else."Ī growing number of forecasters now see storm clouds on the horizon. "We're not trying to provoke - and don't think that we will need to provoke - a recession," he added. "It's not our intended outcome at all but it's certainly a possibility." "It's certainly a possibility," Powell said. Powell stressed the economy is well-positioned to withstand higher interest rates, although he acknowledged that the war in Ukraine and lingering supply-chain problems increase the risk of an economic slowdown. I hope you'll reconsider that, before you drive this economy off a cliff." "It's high inflation and a recession with millions of people out of work. "You know what's worse than high inflation and low unemployment?" Warren said. Elizabeth Warren, D-Mass., cautioned that an abrupt increase in borrowing costs could produce a surge in layoffs, while doing little to untangle supply shocks that have driven up the price of gasoline and groceries.
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