Ben and Jerry Discuss Interest Rates, Jobs and Inflation
Federal Reserve Chair Jerome Powell reiterated today that the Fed is committed to bringing inflation down to its 2% target. Speaking at the “Perspectives on Monetary Policy” panel at the Thomas Laubach Research Conference, Powell said that the Fed will continue to raise interest rates until inflation is under control. The current Fed Chair shared the stage with former Fed Chair Ben Bernanke; the two more or less agreed, with Bernanke seeming a bit less optimistic.
The Panel Discussion
Powell acknowledged that the Fed’s actions to raise interest rates will likely slow economic growth. However, he said that the Fed is confident that it can bring inflation down without causing a recession.
“We understand that high inflation imposes significant hardship, especially on those least able to afford the higher costs of essentials like food, housing, and transportation,” Powell said and then emphasized, “we are strongly committed to returning inflation to our 2% objective.”
Powell reassured that the Fed is closely monitoring the labor market. The event is attended by experts in the field of monetary policy, including economists, central bankers, and other policymakers. It provides an opportunity for experts to share their views on the current state of the economy and the challenges facing central banks. Powell told the attendees that the Fed is committed to keeping the labor market strong but that it will not hesitate to take further action if needed to bring inflation down.
“The labor market is very strong, and we want to see that continue,” Powell said. “But we will take the necessary steps to bring inflation down,” he cautioned.
Ben Bernanke, the former Chair of the Federal Reserve, also spoke at the conference warning that the Fed is facing a difficult challenge in trying to bring inflation down without causing a recession. Bernanke said that the Fed will need to be very careful.
“The Fed is in a difficult spot,” Bernanke said. “It needs to bring inflation down, but it also doesn’t want to cause a recession. It will need to be very careful in its actions.”
Bernanke said that the Federal Reserve is facing a “new normal” in terms of inflation. He said that the Fed will need to be more aggressive in its use of monetary policy to bring down the pace of price increases. The former Fed chair said, “The Fed is going to have to be more aggressive in its use of monetary policy than it has been in the past,” He cautioned. “It’s going to need to raise interest rates more than once this year.”
Bernanke explained to listeners, “the Fed is not trying to cause a recession. But it is willing to risk a recession if it is necessary to bring inflation down.”
The comments from Powell and Bernanke took away any question whether the Fed is committed to bringing inflation down. Most listeners came away from this feeling the Fed is likely to continue to raise interest rates and to shrink its balance sheet in an effort to cool the economy and bring inflation down. However, attendees were also assured the Fed is keenly aware of the risks of a recession and is trying to avoid it.
What Does This Mean for the Economy?
The comments from Ben Bernanke and Jerome Powell suggest that the Fed is prepared to take aggressive action to bring inflation down. This could lead to higher interest rates and slower economic growth. However, the Fed is acting in a way it hopes leads to bringing down inflation without negative growth or a recession.
The bond markets had been pricing in an easing late in the year. US Treasury rates rose as the panel discussion got underway; this suggests that the tenor of some of the comments were unexpected. It is still too early to say what the impact of the Fed’s actions will be on the economy. However, it is clear that the Fed is taking inflation seriously and is willing to take steps to bring it down.
The next Federal Open Market Committee (FOMC) meeting will be held on June 13-14, 2023. The FOMC is the policymaking body of the Federal Reserve System. It meets every six weeks to discuss and set monetary policy, including the target for Fed Funds.
The next FOMC meeting is expected to be a critical one, as the committee will be making its decisions in the midst of sticky inflation, a troubled banking sector, and a slowing economy.
Managing Editor, Channelchek
Sources
https://www.c-span.org/video/?528202-1/federal-reserve-chair-participates-monetary-policy-conference