inflation has surprised and more surprises are possible (Powell)

Washington (awp/afp) – US Federal Reserve (Fed) Chairman Jerome Powell acknowledged on Wednesday that the strength of inflation had surprised monetary authorities and warned that “other surprises” could occur.

In a speech he was to deliver to Congress, Mr. Powell also assured that the American economy was sufficiently “solid and well placed to face a monetary tightening”.

“Inflation has clearly surprised on the upside over the past year and more surprises may lie ahead,” Powell warned during his annual hearing before a Senate committee, as rising prices took hold. hit a 40-year high in the United States at 8.6% year-on-year.

He recalled that the Fed had raised key rates in the last three meetings, leading to a 1.5 percentage point increase in the cost of overnight credit.

The Monetary Committee “expects rate hikes to continue,” he warned, and the pace “will depend on economic data.”

“We will make our decisions meeting by meeting,” said the Fed boss, assuring that the Central Bank’s communication would be “as clear as possible”.

At its last meeting in mid-June, the Monetary Committee surprised the markets by deciding at the last minute to tighten the monetary screw by 75 percentage points, an increase not seen for almost 28 years.

“We will strive to avoid adding uncertainty in what is already an extraordinarily difficult and uncertain time,” he pledged.

But “in a rapidly changing economic environment, our policy has adapted and will continue to do so,” he explained.

Economy still “very solid”

Returning to the causes of inflation, Mr. Powell, who during his hearing will no doubt face Republicans’ criticism of the Fed’s monetary policy, which has been deemed too lax for too long, pointed to “the surge in crude oil prices result of Russia’s invasion of Ukraine” and “COVID-19 lockdowns in China”.

“Inflation has also risen rapidly in many foreign economies,” he insisted. It was just announced on Wednesday at 9.1% over one year in May in the United Kingdom.

Mr. Powell depicted an American economy that was still “very solid” and refrained from mentioning a recession.

“Indicators suggest that real gross domestic product growth accelerated this quarter, with consumer spending remaining strong,” he said, after a decline in GDP in the first quarter.

On the other hand, he pointed to a slowdown in business investment and noted the cold snap that is gripping the real estate market “partly reflecting higher mortgage rates”.

“The tighter financial conditions…should continue to dampen growth and help better balance demand and supply,” he said.

The specter of a recession is increasingly invoked by economic players and experts who fear that by tightening too much the interest rates which condition all other credits, the Fed will not be able to achieve a soft landing.

The White House itself is concerned about the risk of a recession but it also ensures that the fundamentals of the economy remain solid to face it.

“That’s obviously a concern, but the backbone of our economy remains strong,” economic adviser Cecilia Rouse said Tuesday.

Janet Yellen, the Treasury Secretary, assured for her part on Sunday that she did not think a recession was “inevitable”, conceding however that she expected “the economy to slow down” in the context of a transition. towards “slow and stable growth”.

dpa/al

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