(Finance) – “The likelihood of a recession is not high, labor market conditions are tense so the economy is strong and will continue to thrive while monetary policy normalizes. Aggregate demand is currently strong and most forecasters expect it to remain strong. The economy is therefore very strong and able to withstand a tightening of monetary policy“This was stated by the FED president Jerome Powell in the press conference following the March meeting of the US central bank. The Fed has decided to raise rates by 25 basis, marking the first hike in over three years at a time when inflation has reached unprecedented levels in the past 40 years.
A hot topic of reporters’ questions was inflation. The Federal Reserve expects inflation to return to 2%, but the return will take longer than expectedPowell explained. “As we point out in our statement, with adequate monetary policy tightening, we expect inflation to return to 2%, while the labor market remains strong,” she said. Powell said prior to the invasion of Ukraine, expectations were for a spike in consumer prices in the first quarter, some stability and then a decline towards the end of the year. “Now we see inflation rising in the short term, also due to energy and fuel prices – he stressed – The expectation is still that inflation it will begin to decline in the second half of the yearbut it will remain high until the middle of the year “.
The Fed chairman said the central bank will start to reduce the availability of assets on its balance sheet (which totals nearly $ 9 trillion) at a future policy meeting. “We expect to announce the start of the budget cut at an upcoming meeting,” Powell said. “In making interest rate and budgetary decisions, we will take into account the broader contexts in markets and the economy and use our tools to support financial and macroeconomic stability,” he added. In another reply on the same topic, he then said that the implementation could come “at our next meeting in May”. “The framework will look very familiar to people familiar with the last time we did it,” he said. But it will be faster than last time and obviously it’s much earlier in the cycle than last time. “
When asked what would push the FED to adjust the pace of its rate hikesPowell said the central bank could speed up its plans if more aggressive monetary tightening was needed. “The way we think about this is that every meeting is a live meeting – he said – We will analyze the evolving conditions and if we conclude that it would be appropriate to move faster then we will “.”I can’t be perfectly precise to about. But this is definitely a possibility during the year, “she added.
When asked if higher interest rates could potentially lead to higher unemployment rates, the Fed chairman stressed the focus on achieving price stability. “Without price stability, you can’t really have an extended period of maximum occupancy – Powell said – The plan is to restore price stability, while also supporting a strong labor market. This is our intention and we believe we can do it. But we have to restore price stability. ”