The Federal Reserve warned on Wednesday that it would not back down in its fight against the most severe outbreak of inflation in the United States since the 1980s, even if it means a “sustained period” of economic weakness and a weakening labour market.
The Fed’s 75-basis-point rate hike announced on Wednesday, together with previous measures in March, May, and June, has pushed the central bank’s overnight interest rate from near zero to a range between 2.25% and 2.50%. This is the most rapid tightening of monetary policy since previous Fed Chair Paul Volcker faced double-digit inflation in the 1980s.
Consumer prices have not yet surpassed the 10% annual rate this time, but at 9.1%, they are near enough to raise the stakes for both the Fed and the Biden administration, which is particularly concerned about the issue ahead of the November legislative elections.
The current Fed Chair Jerome Powell was peppered with questions about whether the U.S. economy was in or on the verge of a recession as he explained the logic behind the steepest interest rate increases in roughly four decades, a notion he rejected because U.S. firms continue to hire more than 350,000 additional workers each month.
“I do not think the U.S. is currently in a recession,” he told reporters after the end of the U.S. central bank’s latest policy meeting, citing an unemployment rate that is still near a half-century low and solid wage growth and job gains. “It doesn’t make sense that the U.S. would be in recession.”
While Powell stated that he did not believe a recession would be required to solve the problem this time, he did concede that the economy was slowing and would likely need to decline more for the Fed to reduce the pace of price rises back to normal.
