Inflation is a major threat to the job market – Orange County Register

By CHRISTOPHER RUGABER

WASHINGTON (AP) – Chairman Jerome Powell on Tuesday acknowledged that high inflation has emerged as a serious threat to the Federal Reserve’s goal of helping to get more Americans back to work and the Fed will raise rates more than they currently plan if needed to prevent prices from rising. .

Powell said during a Senate Banking Committee hearing that the agency is considering his nomination for a second four-year term. Fed officials have forecast three hikes in their benchmark short-term rate this year, though some economists say they expect four rate hikes by 2022.

The clear challenge for Powell if he is confirmed as expected for a new term is underscored by the questions he faces from both Democratic and Republican senators. Powell and the central bank are under increasing pressure to contain inflation without raising interest rates so high that the economy slips into another recession.

On Tuesday, Powell made it difficult to reject suggestions from several Democratic senators that the rate increase would slow hiring and potentially make many people, especially black Americans and Black Americans have lower income, no work. Fed rate hikes typically lead to higher interest rates on many consumer and business loans and have the effect of slowing economic growth. But Powell made it clear that he is now more worried about the damage that rising inflation could do to the job market.

“High inflation is a serious threat to maximum employment,” he said.

The Fed chair added that the economy must grow for a long time to get as many Americans back to work as possible. Controlling inflation — without raising rates too high to impede the economic recovery — is crucial to reducing unemployment, Powell said.

“We know that high inflation is exactly a toll, especially for those who are less able to meet higher essential costs such as food, housing and vehicles,” he told the committee. go.

Before the Fed chair spoke, he received bipartisan support from the committee chair, Democratic Senator Sherrod Brown from Ohio and Pennsylvania Senator Pat Toomey, a senior Republican on the committee. Committee.

“The president is delivering results rather than partisanship, re-nominating another political party’s federal reserve seat,” Brown said. “As president, along with President Biden, he has helped us deliver historic economic progress.”

“There is broad bipartisan support for Chairman Powell’s re-nomination,” Toomey added.

Inflation has surged to a four-decade high and on Wednesday the government is expected to report that consumer prices have risen 7.1% over the past 12 months, up from a 6.8% gain of November compared with the same period last year.

Powell’s nomination is likely to be approved by the committee in the next few weeks and then confirmed by the full Senate with bipartisan support. But members of Congress will no doubt question Powell about whether the Fed can successfully contain inflation without slowing the economy to the point of plunging or even into a recession.

Economists and former Fed officials are increasingly concerned that the Fed is behind the curve in inflation. Last Friday’s December jobs report, which showed the unemployment rate plummeting to 3.9%, and a surprise wage increase, helped ease those concerns. While lower unemployment and higher wages are beneficial for workers, those trends can drive prices higher.

At the Fed’s most recent meeting in December, Powell said the central bank was rapidly speeding up efforts to tighten credit with the goal of curbing inflation. The Fed will stop buying billions of dollars in bonds in March, ahead of its previously announced goal of doing so in June. Those bond purchases are intended to encourage more borrowing and spending by lowering interest rates. long-term.

Fed officials are now expected to raise short-term rates three times this year, a sharp change from September, when they were divided for doing it even once. Economists increasingly expect they will raise interest rates at least four times by 2022.

Powell also said in his prepared remarks that the US job market is “strong” and that the economy is “expanding at its fastest pace in years”. But he also acknowledged that the economy has suffered some of the more permanent damage from the pandemic.

“We can start to see that the post-pandemic economy is likely to be different in some respects,” the Fed chair said. “Our pursuit of goals will need to take these differences into account.”

Powell has previously said that the Fed’s initial goal is to restore the economy and the job market to pre-pandemic levels, when the unemployment rate has fallen to a 50-year low of 3.5% and the unemployment rate has fallen. The percentage of Americans who are working or looking for work is higher than it is now.

But more recently, Powell acknowledged that many of those who have stopped working or looked for work during the pandemic are unlikely to return any time soon. Millions of older Americans are retiring earlier than they would have otherwise had COVID, and many are giving up their jobs to avoid getting infected.

That has led businesses to chase fewer workers to fill more than 10 million open jobs, a near-record number, and forced them to rapidly increase hourly wages. Wage increases could spur more spending, which could drive prices higher.