In a statement to the Senate Banking Committee on Wednesday, the Fed chairman acknowledged that it was now more difficult for the central bank to root out rising inflation while maintaining a strong labor market. He argued that the US was resilient enough to withstand tougher monetary policy without slipping into recession, but acknowledged that external factors, such as the Ukraine war and China’s Covid-19 policy, could further complicate the outlook. “It’s not the result at all, but it’s definitely a possibility,” Powell said when asked about the risk that the Fed plans to raise interest rates this year could lead to a recession. He added that due to “events in recent months around the world”, it was “now more difficult” for the central bank to meet its 2 percent inflation targets and a strong labor market. “The question of whether we are able to achieve this will depend to some extent on factors we do not control,” he said, referring to the spike in commodity prices stemming from Russia’s invasion of Ukraine and blocked supply chains. due to China lockdown. Powell has been repeatedly pressured by lawmakers about the weight imposed by the Fed’s recent anti-inflation moves, now at 8.6%, the highest in four decades. The central bank last week implemented the biggest rate hike since 1994, signaling its support for what is expected to be the most dynamic campaign to tighten monetary policy since the 1980s. “Do you know what is worse than high inflation and low unemployment?” “It’s high inflation and recession with millions of people out of work,” said Elizabeth Warren, a progressive Democrat from Massachusetts. “I hope you think about it again before you drive this economy off the cliff.” Powell told a separate stock exchange that there would be significant risks if the Fed did not act to restore price stability, with inflation consolidating. “We know from history that this will hurt the people we want to help, the people on the lower income spectrum who are now suffering from high inflation,” he said. “It simply came to our notice then. We can not fail in this project. “ As of noon, the yield on the two-year US bond, which is moving in line with interest rate expectations, fell 0.1 percentage points to 3.06%. US stocks rose 0.2% on the S&P 500. Concerns about a possible recession have risen, with worse-than-expected inflation figures this month. While Powell argued that the US economy was “very strong and well positioned to pursue a tighter monetary policy”, he acknowledged that “further surprises for inflation could be reserved”. “Therefore, we need to be agile in responding to incoming data and evolving prospects and try to avoid adding uncertainty at a time when it is already extremely difficult and uncertain,” he said.

Traders have valued the federal capital reference rate at about 3.6 percent by the end of the year, an increase that has led to a wider increase in borrowing costs worldwide. Powell said Wednesday that tightening financial conditions is already having the desired impact and reducing demand. Powell’s testimony comes at a critical time for the White House, which is facing growing expectations of a sharp slowdown in growth ahead of the November midterm elections. Many economists have since penciled in a recession until next year. “There is nothing inevitable about a recession,” US President Joe Biden told reporters this week – a message also sent by US Treasury Secretary Janet Glenn and Brian Dees, director of the National Economic Council. Fed officials have begun preparing market participants for at least one more rate hike of 0.75 percentage points at their next meeting in July. Powell said Wednesday that the Fed needs to see “necessary evidence” that inflation is easing before it can give in to the push to raise interest rates. Powell said future decisions on the Fed’s actions would be decided “meeting by meeting”.