WASHINGTON — Federal Reserve Chairman Jerome Powell, who just won Senate confirmation for a second term earlier in the day, acknowledged for the first time Thursday that high inflation and economic weakness overseas could thwart its efforts to avoid triggering a recession.
For weeks, Powell has described the Fed’s drive to raise interest rates as consistent with a so-called “soft landing” for the economy. In this scenario, the Fed would be able to tighten borrowing costs enough to cool the economy and rein in inflation without tipping the economy into recession.
But in an interview on NPR’s “Marketplace,” Powell conceded that this balancing act — which many economists said they doubted the Fed could pull off — could be undermined by economic slowdowns in Europe and China.
“Whether we can execute a soft landing or not – that may actually depend on factors beyond our control,” the Fed Chairman said. “There are huge events, geopolitical events happening around the world, which are going to play a very big role in the economy over the next year.”
Such comments reflect less confidence in avoiding a recession than Powell previously said. Just last week, he told a press conference: “I think we have a good chance of having a soft or smooth landing or result.”
On Thursday, he said slowing inflation to the Fed’s 2% annual target — from its current 6.6%, the central bank’s preferred measure — “will also include some pain, but ultimately the most painful thing would be if we failed to deal with it and inflation were to take root in the economy at high levels.
European economies are suffering from high inflation, exacerbated by Russia’s invasion of Ukraine and the resulting spike in natural gas and oil prices. Europe has been much more dependent on Russian energy supplies than has the United States.
China’s strict COVID lockdown policies have closed ports, hampering exports and slowing consumer spending in cities like Shanghai, where millions of Chinese have been largely confined to their homes for weeks.
In his interview with NPR, Powell also appeared to suggest that the Fed would at least consider raising its benchmark rate by an extremely large three-quarters of a point if inflation showed no signs of slowing in the coming months. Last week, the stock market initially soared when Powell appeared to pull a three-quarter point rate hike off the table.
After repeating his comment from last week that half-point hikes were likely at each of the Fed’s next two meetings, in June and July, Powell added Thursday, “If things go better than expected , then we are ready to do less .If they are worse than expected, we are ready to do more.
Asked if ‘doing more’ meant a three-quarter point hike, Powell said: ‘You’ve seen this committee adapt to incoming data and changing perspectives. And that’s what we will continue to do. »