Federal Reserve Chair Jerome Powell testifies about monetary policy and the state of the economy before the House Financial Services Committee on Wednesday. Powell reiterated the Fed is gearing up to raise interest rates this month.
Federal Reserve Chair Jerome Powell said on Wednesday the central bank is on track to start raising interest rates this month — likely by a quarter percentage point — in an effort to combat inflation, which is the highest it’s been in nearly 40 years.
But the Fed will proceed with caution, Powell told the House Financial Services Committee, as Russia’s invasion of Ukraine adds more uncertainty to the economic outlook.
“The economics of these events are highly uncertain,” Powell said. “So far, we’ve seen energy prices move up further and those increases will move through the economy and push up headline inflation, and also they’re going to weigh on spending.”
The average price of gasoline in the U.S. approached $3.66 per gallon on Wednesday. Rising energy prices have been a significant driver of annual inflation, which hit 7.5% in January – the highest level since 1982.
Powell says it’s too soon to tell on Ukraine
Powell said it’s too soon to know how large or long-lasting price increases tied to events in Ukraine will be, so he and his colleagues on the central bank’s rate-setting committee are prepared to be flexible.
“We’re never on auto-pilot,” Powell said. “Those of us on the committee have an expectation that inflation will peak and begin to come down this year. And to the extent that inflation comes in higher or is more persistently high than that, then we would be prepared move more aggressively.”
Forecasters expect the Fed to impose additional interest rate hikes later this year in an effort to cool red-hot consumer demand, which has outstripped supply and driven prices sharply higher.