Powell reflects on inflation response as Fed's interest rate policy faces challenges

Fed Chairman Powell recently reflected on the measures taken to control inflation during an interview. He acknowledged that it might have been better to raise interest rates earlier, but he also emphasized that the decisions made at the time were the best choices based on real-time conditions.

These remarks reflect Powell's wavering stance on the previously held "transitory inflation" theory. Months of high inflation have placed immense pressure on the U.S. economy and have led to increasing scrutiny of the Fed's policies.

Powell stated that the Fed is facing the challenge of seeking a balance between controlling inflation and maintaining economic growth. He acknowledged that the Fed's anti-inflation actions may be somewhat delayed, but emphasized that they have been doing their utmost to respond.

On Thursday, the U.S. Senate confirmed Powell's reappointment as Fed Chair. However, some senators' support for Powell has weakened due to voters being affected by soaring prices.

Looking back at last year, the Fed had long insisted that the rise in inflation was only a temporary phenomenon, mainly concentrated in areas affected by the pandemic and supply chain disruptions. However, it has proved that the impact of inflation is far beyond expectations and has spread to various industries, putting immense pressure on people's daily lives.

In the face of this situation, the Fed had to adjust its position, abandon the "transitory" narrative, and strive to communicate to the public that they are taking inflation issues seriously and are taking action to address them. Powell even held a special press conference last week to speak directly with the American public, emphasizing that the Fed's top priority is to curb inflation.

To cool down inflation, raising interest rates has become the main tool of the Fed. By increasing interest rates, the borrowing costs for households and businesses can rise, thereby slowing down consumption and investment. However, the challenge faced by the Fed is how to control inflation while avoiding excessive cooling of the economy to achieve what is known as a "soft landing."

In an interview, Powell stated that the Fed will flexibly adjust the rate hike based on economic performance. If the economic performance meets expectations, there may be a 50 basis point increase at each of the next two meetings. However, he also emphasized that if the economic performance is better or worse than expected, the rate hike will be adjusted accordingly.

When asked whether it was possible to raise interest rates by 75 basis points at once, Powell did not give a clear answer but stated that the Fed would make corresponding adjustments based on future data and changes in the economic outlook. This vague statement leaves open the possibility of a larger rate hike.

Overall, Powell's latest remarks reflect the Fed's efforts to balance the dual goals of economic growth and price stability in the face of severe inflationary pressures. The future direction of monetary policy will depend on changes in economic data and the persistence of inflationary pressures.