WASHINGTON–Despite last week’s aggressive 75-basis point increase in the Fed funds rate, Federal Reserve Chairman Jerome Powell told the Senate the ongoing interest rate hikes will have little effect on what Americans are paying for groceries and gas.
Testifying before the Senate Banking Committee as part of the semi-annual report to Congress, Powell fielded questions from senators from both sides of the aisle. Powell will deliver similar remarks today before the House.
Sen. Elizabeth Warren (D-MA) cautioned Powell and the Fed to move cautiously so as not to cause a recession and hurt job growth. She also asked the Fed chairman whether the rate increases will do anything to lower the cost of groceries and gasoline for Americans.
"I would not think so," Powell responded.
Warren further told Powell, "Rate hikes won't make Vladimir Putin turn his tanks around and leave Ukraine," but they will hurt American consumers.
"Inflation is like an illness and the medicine needs to be tailored to the specific problem, otherwise you could make things a lot worse," Warren said. "Right now, the Fed has no control over the main drivers of rising prices but the Fed can slow demand by getting a lot of people fired and making families poorer."
The Massachusetts Democrat urged Powell to proceed cautiously with further rate hikes.
Seeking ‘Realignment’
Avoiding a number of touchy political issues, Powell told the committee, “I'm really focused on what we could do, which is shrink our balance sheet and raise interest rates and get supply and demand back into alignment and get inflation back down to 2%...At the Fed, we understand the hardship high inflation is causing. We are strongly committed to bringing inflation back down, and we are moving expeditiously to do so."
In the wake of last week’s boost in rates, Powell said, “The American economy is very strong and well-positioned to handle tighter monetary policy.”
Powell added he does not believe the Fed’s actions will tip the economy into a recession.