WASHINGTON (Reuters) – There is a risk that raising interest rates from the Federal Reserve (Fed) will slow the economy too much, but the biggest danger lies in long-lasting inflation, Jerome Powell, chairman of the Fed, said on Wednesday. the US central bank.
“The risk is that due to the multiplicity of shocks you start to move to a higher inflation regime and our job is to literally prevent that from happening and we will prevent it,” Jerome Powell said in the framework of the annual Forum organized by the European Central Bank in Sintra, Portugal.
If there is a risk that the Fed will slow the economy more than necessary to control inflation, “I disagree that is the biggest risk. The biggest mistake would be not to succeed in restoring price stability,” he added.
Jerome Powell used his participation in the ECB’s annual forum to reaffirm the Fed’s approach of doing whatever it takes to control inflation.
Central bank officials now see the fed funds rate target rising to 3.4% by the end of the year, a level they say is higher than could begin to hold back the economy in the long run. term.
Jerome Powell said the U.S. economy remained “in pretty good shape” and was able to absorb the impact of tighter credit conditions while avoiding a recession or even, Fed officials hope, a recession. significant increase in the unemployment rate.
The path to a “soft landing” becomes “significantly more difficult” as inflation persists, however, and increases the risk of inflationary expectations becoming unanchored, Jerome Powell said.
“If you’re starting to see a serious unanchoring – and you’re not – in long-term inflation expectations, then you’re late,” said Jerome Powell. “Right now, we are doing what we have to do (…) not to find ourselves in this situation”.
(Howard Schneider, French version Laetitia Volga, edited by Jean-Michel Bélot)
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