To control inflation, the Federal Reserve must raise rates even faster, according to its top official.
To control inflation, which is already at 40-year highs, the Federal Reserve will need to further speed up raising interest rates, its chairman Jerome Powell told the Senate Banking Committee on Wednesday.
He called for a "restrictive policy" that would slow the expansion of the money supply and lower inflation to a "neutral" pace - the 2 percent target the central bank is aiming for. "I think that the most recent inflation indicators, [the] various kinds, suggest to us that we need to accelerate the pace at which we can get up to a level that is neutral," he said.
To slow down price growth, so-called "restrictive policies" aim to boost interest rates to sufficiently high levels. This is important given the persistent inflation that is currently wreaking havoc on the American economy.
While describing the Fed's goal of achieving a "soft landing" for the economy by maintaining employment growth despite interest rate increases, Powell acknowledged that success would be "extremely tough."
"We never implied that it would be simple or uncomplicated. It's going to be difficult, and the recent events have undoubtedly made it more difficult. However, he begged, "There are still scenarios in which that might occur.
However, when asked by Senator Bill Hagerty (R-Tennessee) about what precisely was causing the surging inflation, Powell noted that "inflation was high, certainly before the war in Ukraine broke out" in a nod to recent polls showing just 11% of Americans believe the "Putin's price hike" explanation for the current state of the US economy.
To bring the total interest rate down to 1.75 percent and reduce inflation to 2 percent, Powell previously announced a 0.75 percent interest rate hike last week, the most in 28 years. According to predictions made by the central bank, interest rates by year's end could reach 3.4 percent.
At the time, he declared that the Fed had no plans to quicken the rate at which it raised interest rates. The testimony before Congress this week, though, suggests differently.
The central bank may believe that the issue is more serious now because inflation is not showing any signs of slowing down. In May, inflation increased at an annualized rate of 8.6 percent, which is more than four times the preferred 2 percent target.
Many experts are worried that a rate increase that is made too quickly may cause the US to enter a recession. As the US economy had suffered minus 1.4% growth during the first quarter, the country will officially be in a recession if the second quarter does not show positive growth.