Federal Reserve Chair Jerome Powell acknowledged Tuesday that high inflation has emerged as a serious threat to the Fed's goal of helping put more Americans back to work and that the Fed will raise rates more than it now plans if needed to stem surging prices. "If we have to raise interest rates more over time, we will," Powell said during a hearing of the Senate Banking Committee, which is considering his nomination for a second four-year term, per the AP. Fed officials have forecast three increases in the benchmark short-term rate this year, though some economists say they envision four rate hikes in 2022.
The stark challenge for Powell if he's confirmed as expected for a new term was underscored by the questions he faced from both Democratic and Republican senators. Powell and the central bank are under rising pressure to rein in inflation without ramping up interest rates so high that the economy tumbles into another recession. On Tuesday, Powell took pains to rebuff suggestions from some Democratic senators that rate increases would slow hiring and potentially leave many people, particularly lower-income and Black Americans, without jobs.
Fed rate increases typically lead to higher rates on many consumer and business loans and have the effect of slowing economic growth. But Powell made clear that he's now more worried about the damage that rising inflation could inflict on the job market. "High inflation is a severe threat to the achievement of maximum employment," he said. The economy, the Fed chair added, must grow for an extended period to put as many Americans back to work as possible. Controlling inflation—without raising rates so high as to choke off the economic recovery—is critical to lowering unemployment, Powell said.
"We know that high inflation exacts a toll, particularly for those less able to meet the higher costs of essentials like food, housing, and transportation," he told the committee. Before the Fed chair spoke, he received expressions of bipartisan support from the chair of the committee, Democratic Sen. Sherrod Brown from Ohio, and Pennsylvania Sen. Pat Toomey, the senior Republican on the panel. "The president is putting results over partisanship, re-nominating a Federal Reserve chair of the other political party," Brown said. "As chair, together with President Biden, he has helped us deliver historic economic progress."
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