The Fed has already begun to raise interest rates to try to cool the economy, including its realization the largest increase since 2000 earlier this month. Mr. Powell and his colleagues have signaled that they will continue to drive up financial costs as they attempt to limit spending and hiring, hoping to bring supply and demand back into balance and reduce inflation.
While the Fed chairman appeared to rule out a sharp 0.75% rate hike for the time being during a press conference last week – saying such a big move wasn’t currently under consideration – he made it clear that it might be appropriate if the economy surprises officials in a negative way.
“If things come out better than we expect, then we are ready to do less,” said Mr. Powell. “If they come worse than we expect, then we are ready to do more.”
The looming question for the Fed is whether they will be able to slow the economy enough to moderate inflation without spurring a recession – something Powell and his colleagues have repeatedly acknowledged could be a challenge.
“There are huge events, geopolitical events going on around the world, which are going to play a very big role in the economy in the coming year,” Powell said Thursday. “So the question of whether we can perform a soft landing or not may actually be down to factors we don’t control.”