Federal Reserve chairman Jerome Powell has warned of the risk of a US recession but said the central bank remains "strongly committed" to fight inflation as Americans enter a summer of record-high prices for petrol, groceries and other goods.
Addressing the Senate Banking Committee on Wednesday, Mr Powell described the tightrope the Fed is walking as it jacks up interest rates in a bid to cool soaring inflation.
He said that while a recession was “certainly a possibility. It is not our intended outcome at all,” noting that events in the last few months have made it harder for the Fed to lower inflation while sustaining a strong labor market.
“The other risk, though, is that we would not manage to restore price stability and that we would allow this high inflation to get entrenched in the economy,” Mr Powell said.
“We can’t fail on that task. We have to get back to 2 per cent inflation.”
He said it was essential for the Fed to tamp down inflation to sustain a strong labour market.
The Fed chairman previously received praise for his handling of the economy during the coronavirus pandemic, including from leading members of the banking committee, but is now grappling with the growing threat of a recession and has faced sharp criticism for failing to act to tamp down inflation sooner.
"We understand the hardship that high inflation is causing. We are strongly committed to bringing inflation back down, and we're moving expeditiously to do so," he said.
The Fed has been limited in its ability to react to the lingering effects of the pandemic, as well as soaring food and petrol prices caused by Russia's invasion of Ukraine.
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Inflation remains well above the Fed's 2 per cent goal over a 12-month period, he said.
"This is very high inflation and it's hurting everybody, and we need to do our job and get inflation back on a path down to 2 per cent," he said.
In an effort to ease record prices, the Fed last week raised interest rates by 75 basis points, the largest increase since 1994. The move came after US government data showed inflation had risen by 8.6 per cent in May.
And more rate hikes could still come, Mr Powell said.
"We anticipate that ongoing rate increases will be appropriate," he said. "The pace of those changes will continue to depend on the incoming data and the evolving outlook for the economy."
President Joe Biden last month underscored his respect for the Fed's independence during a meeting with Mr Powell.
However, with his approval ratings sinking and the Democrats poised to lose at least one chamber of Congress in November, the president has publicly shifted responsibility to the Fed for tackling inflation.
And in an opinion column published by The Wall Street Journal, Mr Biden said the central bank has a “primary responsibility to control inflation”.
About 83 per cent of American citizens hold a pessimistic view about the economy, a recent Wall Street Journal-Norc poll showed, with more than one third of respondents saying their financial situation was worse today than one year ago.
- News agencies contributed to this report
