The agency’s president, Jerome Powell, said the “consequences” of the Ukraine war on the U.S. economy were “very uncertain” but that wouldn’t stop the U.S. central bank from raising interest rates within two weeks.
“This conflict has caused enormous hardship for the Ukrainian people,” the Fed chair told a House hearing. “The short-term impact of the invasion of Ukraine, the ongoing war, sanctions and future events on the U.S. economy remains highly uncertain,” he continued.
“We will be monitoring the situation closely,” he also said, noting that Fed leaders will need to show “great flexibility” based on economic data and the changing outlook for major economies. world.
He also stressed that “making appropriate monetary policy decisions” “needs to recognize that the economy is changing in unexpected ways” in the context of the war in Ukraine, the imposition of severe economic sanctions on Russia by the U.S. and others, and potentially unpredictable events. “.
However, Mr Powell believes that a rate hike at the March 15-16 meeting is still “appropriate” given inflation. In particular, he believes, this will help moderate prices in the real estate sector.
He also said he would propose a 0.25% increase in interest rates.
Furthermore, if inflation turns out to be higher, “we will be prepared to take more aggressive action to raise the federal funds rate by more than 25 basis points at one or more meetings later this year.” he added.
However, Russia’s invasion of Ukraine severely complicates the tasks of powerful US financial institutions, as the offensive takes place at a time when prices around the world, especially energy prices, are already very high, due to insufficient supplies and the lifting of tensions with many countries. Strong recovery in international demand related to the restrictions of the Covid-19 pandemic.
– “Price Stability” –
In the United States, inflation has reached its highest level in 40 years. To stem the price spiral, the Federal Reserve has signaled it will raise interest rates, which have been near zero since the pandemic began.
Since March 2020, the key rate has been in the low 0% to 0.25% range.
Before the conflict in Eastern Europe, some economists expected a sharp increase.
As such, Mr. Powell is highly anticipated at U.S. congressional hearings on Wednesday and Thursday.
For now, he recalls, in the U.S., “economic activity recovered at a steady 5.5% pace last year, reflecting progress on vaccinations and the reopening of the economy,” but also thanks to the Federal Reserve and the Federal Reserve. government.
Furthermore, while the rapid spread of the Omicron variant during the winter led to “a certain slowdown in economic activity at the beginning of the year,” the rapid decline in pollution cases since mid-January culminated in a “brief” halt to the hit, he believes.
On top of that, he pointed to an “extremely tight labor market” with 6.7 million jobs created in 2021, “strong job growth in January” and wages “growing at their fastest pace in years.”
If you add the unemployment rate, which has fallen sharply over the past year (4% in January), and exclude the war in Ukraine, all the ingredients for a series of rate hikes this year are in place.
“We know that the best thing we can do to support a strong labor market is to promote sustainable expansion, which is only possible in an environment of price stability,” Jerome Powell also stressed.
Finally, he reiterated that the Fed still expects inflation to moderate “this year as supply constraints ease and demand moderates.”