Federal Reserve Chair Jerome Powell told Congress that the U.S. central bank must "go ahead" and keep raising interest rates to get inflation down, even if that means that the economy faces higher unemployment and a potential recession.
During a hearing before the Senate Banking Committee on Wednesday, Powell said that a soft landing “is going to be very challenging,” and that a recession is “certainly a possibility.” Sen. John Kennedy (R-La.) called Powell the “most powerful man” in the world right now.
“We are not trying to provoke and do not think we will need to provoke a recession, but we do think it’s absolutely essential that we restore price stability, really for the benefit of the labor market, as much as anything else,” he said.
Inflation is still running at a four-decade high of 8.6% in May, a new high that surprised economists, traders and even Fed officials. Powell said the Fed will continue to raise interest rates until it sees a clear sign that inflation is cooling down.
“Financial conditions have already priced in additional rate increases, but we need to go ahead and have them,” he said.
The federal funds rate is currently in a range between 1.5%-1.75%, but revised projections by Fed officials last week show that the rate is expected to go up to 3.25%-3.5% by the end of the year.
Three senators, including Sen. Cynthia Lummis (R-Wyo.), Sen. Kyrsten Sinema (D-Ariz.) and Sen. Sherrod Brown (D-Ohio), challenged Powell with questions on crypto, specifically regulation, accounting treatment of digital assets and the current crash in the crypto market.
“We are tracking those events very carefully,” said Powell, but the central bank is “not really seeing significant macroeconomic implications, so far."
He also repeatedly highlighted that there’s a need for a better regulatory framework for crypto.
“The same activity should have the same regulation no matter where it appears, and that isn't the case right now because a lot of the digital finance products, in some ways, are quite similar to products that have existed in the banking system or the capital markets, but they're just not regulated the same way,” he said. “So we need to do that."
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