Federal Reserve Chairman Jerome Powell pledged to Americans that the central bank will continue to lever interest rates as much as needed to slow the rapid inflation weighing on the U.S. economy.
“I’d start by assuring everyone that we’re fully committed to bringing inflation back down and also sustain the economic expansion,” Powell told reporters on Wednesday afternoon.
The Fed once brushed off rising prices as a “transitory” phenomenon, hoping that the inflation was the result of pandemic-induced supply chain disruptions that would fade by late 2021. Instead, all major measures of inflation showed the pace of inflation continuing to rise through the beginning of this year. The Personal Consumption Expenditures Index showed prices rising by 6.1% in February, the fastest annual pace seen since 1982.
Acknowledging that inflation is no longer transitory, the Fed Wednesday took the first major steps in reversing its pandemic-era stimulus — by increasing short-term interest rates by 0.25%. The Fed had held interest rates at near zero since the depths of the pandemic.
Hiking rates will make it slightly more expensive to borrow. “As we raise interest rates, that should gradually slow down demand for the interest-sensitive parts of the economy. And so what we would see, is demand slowing down but just enough so it’s better matched with supply and that will bring inflation down over time,” he said.
