Fed Chair Powell Says “Long Way to Go” in Inflation Fight, Calls U.S. Debt “Unsustainable”
The United States is monitoring disinflation in the national economy but “it has a long way to go” Before price stability can be achieved, it is important to: Federal Reserve Chair Jerome Powell.
On Tuesday, the Fed chair spoke at the Economic Club of Washington and acknowledged that the country was in the “very early stages of disinflation.” However, there is still high inflation in many areas of the marketplace, he stated, referring to services.
In December, there was a rise in services inflation Climbing According to the Bureau of Labor Statistics, this figure is 7.5 percent higher than last year. This is the highest level recorded since August 1982.
According to Powell, it is going to take time to return inflation to the central bank’s 2 percent target, and the road to this aim is “probably going to be bumpy.” Accordingly, he believes that Fed policy will have to be kept at a low level for a long time.
“We expect 2023 to be a year of significant declines in inflation. It’s actually our job to make sure that that’s the case,” Powell spoke to David Rubenstein (Carlyle Group cofounder) at the event. “My guess is it will take certainly into not just this year, but next year to get down close to 2 percent.”
Today, the personal consumption expenditure (PCE) price index—the Fed’s preferred inflation measurement—is running at an annualized rate of 5 percent. Core PCE, which excludes volatile food and energy sector sectors, is currently running at 4.4 per cent.
Asked if there are any threats to the Fed’s inflation-busting quantitative tightening (QT) campaign, Powell stated there are elements that are out of the central bank’s control—such as the war in Ukraine and the reopening of China’s economy.
Market Reaction
The Fed Chair assured markets that it is not the institution’s goal to surprise investors.
Before Powell’s remarks on Tuesday, the financial markets were treading water. The Fed chief said that inflation is declining and the benchmark indexes rose during Powell’s speech.
However, stocks turned negative again when investors heard Powell confirm that more rate hikes would likely happen, iterating what was noted in last week’s Federal Open Market Committee (FOMC) Policy statement.
“If we continue to get, for example, strong labor market reports or higher inflation reports, it may well be the case that we have to do more and raise rates more than is priced in,” He explained.
“I think there’s been an expectation that it’ll go away quickly and painlessly, and I don’t think that’s at all guaranteed. That’s not the base case,” Powell also added. “The base case is … that it will take some time. And we’ll have to do more rate increases, and then we’ll have to look around to see whether we’ve done enough.”
Market estimates were surpassed by the addition of 517,000 new jobs to the U.S. economy in January. The unemployment rate dropped to 3.4 percent.
The Dow Jones Industrial Average fell by 0.6 percent, while the S&P 500 lost about 0.4 percent and the Nasdaq Composite Index dropped 0.25 percent.
Treasuries were mixed. The benchmark 10-year yield rose more than three basis points to 3.66 per cent.
The U.S. Dollar Index or DXY, which measures the greenback in relation to a basket of currencies and trades flat, hovering around 103.60.
On March 21 and 22, the next FOMC policy meeting is scheduled. According to the FOMC, it is expected that officials will increase the benchmark fed funds rate 25 basis points to a range between 4.75 percent to 5.00 percent. CME Group FedWatch Tool.
Debt Ceiling
Powell answered a question about the U.S. debt limit and said that it was a fiscal issue under the control of Congress and Treasury Department.
Powell expressed hope that Congress would vote for an increase in the debt ceiling to allow the federal government to pay its entire bills. He noted, however, that the central bank doesn’t possess the necessary resources to pay all of its bills. “ability to shield the financial markets or the economy from the consequences” Increase the debt limit.
The U.S. government reached its $31.4 trillion debt ceiling last month. Democrats and Republicans have been stuck at a halt ever since. The White House stated that there would be no negotiations to increase the debt limit, but GOP lawmakers argue that it is irresponsible to refrain from addressing Washington’s immense spending and debt levels.
Powell claimed that the federal government is in an “unsustainable fiscal path.”
“That has been the case for some time, and it’s something we will have to deal with; it is better to deal with it sooner rather than later,” Powell also added.
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