In testimony to the Senate banking committee on Wednesday, Fed Chair Powell acknowledged that steep interest rate hikes may cause a recession in the US, and avoiding it mostly depends on the factors beyond Fed control. “The other risk, though, is that we would not manage to restore price stability and that we would allow this high inflation to get entrenched in the economy,” Powell added. “We can’t fail on that task. We have to get back to 2% inflation.” In regards to recent rate hikes Chair also said “We anticipate that ongoing rate increases will be appropriate”, “Inflation has obviously surprised to the upside over the past year, and further surprises could be in store. We, therefore, will need to be nimble in responding to incoming data and the evolving outlook.” The Federal Reserve increased the funds rate by 75bps to 1.5%-1.75% during its June 2022 meeting, instead of 50bps initially expected, after the inflation rate unexpectedly accelerated last month to 41-year highs.
