Washington (The Times Groupe)- As crude oil prices rise, inflation widens while China’s lockdown on Coronavirus worsens supply disruptions, Federal Reserve Chair Jerome Powell said Wednesday.
“Price pressures have expanded to a broader range of goods and services. The spike in crude oil and other commodities due to Russia’s invasion of Ukraine is adding to the inflationary pressure,” Jerome Powell said in a press conference after the central bank’s historic rate hike.
“COVID19 related lockdown in China is likely to further exacerbate supply chain disruptions,” Powell added.
The Federal Reserve raised its benchmark interest rate by 50 basis points at the end of its two-day meeting earlier this month.
To fight against record-high inflation, the central bank raised its benchmark rate to 0.75% to 1%, the steepest increase since 2000.
“Inflation is much too high and we understand the hardship it is causing. And we are moving expeditiously to bring it back down. We have both the tools we need and the resolve it will take to restore price stability,” Powell declared.
“It is essential that we bring inflation down if we are to have sustained period of strong labor market conditions that benefit all,” he added.
Powell noted that the American economy grew at a robust rate of 5.5% last year, but that overall economic activity declined in the first quarter.
The Fed’s preferred inflation indicator, the personal consumption expenditures (PCE) price index, rose 6.6% in March from last year.
It is unlikely that the Fed will raise interest rates more than 50 basis points in the months ahead, according to Fed chair Janet Yellen.
“A 75 basis point [interest rate] increase is not something the FOMC is actively considering. I think inflation will begin to flatten out, he said.
“I would say we have a good chance of a soft landing,” he said.
Powell, however, noted that a broad consensus existed among FOMC members about another 50 basis points of interest rate increases in the next few meetings.
The Fed chair said Russia’s war on Ukraine is expected to restrict economic activity abroad and disrupt supply chains, causing spillovers to the American economy via trade and other channels.
As the labor market recovers from the Coronavirus pandemic, Powell believes the unemployment rate in the world’s largest economy will continue to decline.