Consequences of war in Ukraine for US economy ‘highly uncertain’: Powell

The Federal Reserve will go ahead with its plans to upload the interest rates this month to try to control the high inflationbut the outbreak of the war in Ukraine has made the outlook “very uncertain,” the president of the fed, Jerome Powell.

In comments prepared for his testimony before the Financial Services Committee of the House of RepresentativesPowell reiterated the Fed’s central narrative that high inflation and a working market “extremely tight” justify the rate hike.

“We hope it will be appropriate to raise the target range for the fed funds rate at our meeting this month,” Powell said, adding that the Fed will carry out reductions this year in its portfolio of government-backed assets of about $8.5 trillion. Dollars.

But in his opening statement, Powell gave no hint as to the speed of the beat. rate hike. He added that Fed officials still expect inflation to ease later this year, and framed the beginning and end of his remarks with events unfolding in Ukraine.

The impact of coronavirus pandemic in the economy appears to be slowing, he said, hiring remains strong, and the inflation has emerged as the main risk.

Inflation “is now well above our long-term target of 2 percent. Demand is strong, and bottlenecks and supply constraints are limiting how quickly production can respond,” he said. Fed chief.

He added that those supply interruptions had been “bigger and longer lasting than anticipated”, and reaffirmed the promise of the Federal Reserve to be as strict as necessary to get prices back on track.

While some of those inflationary pressures are expected to abate over the course of the year, “we are keeping an eye on the risks of potential additional upward pressures.”

Powell also acknowledged the new complexity facing the Fed from events in Europe, which have the potential to both increase price pressures and undermine growth.

“Short-term effects on american economy of the invasion of Ukraineongoing war, sanctions and events ahead remain highly uncertain,” Powell said. “We will need to be nimble in responding to incoming data and evolving outlooks.”

The persistent inflation, which triples the objective of 2% of the Federal Reservehas surprised those responsible for the monetary politicswho thought that the rapid increase in prices caused by the pandemic would be temporary.

The market expects the Fed to raise the interest rate reference to a day, currently at zero, at its meeting on March 15-16. More hikes are expected in the remainder of the year, which will steadily increase the cost of credit for consumers and businesses.

Although high inflation remains the Fed’s main objective, the invasion of Ukraine it has added a new dimension to the Fed policymakers’ analysis. Prices may be pushed further, for example, by energy hikes and new limits on the movement of people and goods.

World economic growth may take a hit just as the governments of United States The US and Europe hoped that the fallout from the pandemic would ease to the point that the last restrictions on businesses, schools and socializing could be lifted.

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