Federal Reserve Chairman Jerome Powell appeared before the Senate Tue. to testify on the Fed's efforts to curb inflation.
Powell testified before the Senate Banking Committee Tue.; he's set to appear before the House Financial Committee on Wed..
Powell told senators Tue. that the Federal Reserve was likely to raise interest rates this month to stamp out inflation.
The Fed last raised interest rates by .25 points in Feb.—its eighth rate hike since March 2022. (AP)
Why is the Fed raising interest rates again? Per Powell, inflation is still high, measuring at 6.4% in January. (CNN)
How do hikes lower inflation? Per Powell, the goal is to lower prices by limiting borrowing power and money supply.
The bad news? Interest rate hikes could dramatically drive up unemployment as employers seek to cut costs. (CNN)
1. First, the good news: Powell told senators Tue. that goods inflation was going down relative to housing and services.
Powell said Tue. that pandemic-era supply chain disruptions were largely to blame for price inflation for goods.
The bad news? Powell said that inflation would continue to be an issue in both the housing and service sectors. (CNN)
According to Powell, inflation in the service sector is largely due to low unemployment and rising wages and salaries.
2. Powell also told senators Tue. that he was skeptical about claims that rate hikes would sharply increase unemployment.
Why? Well, Powell argued that the U.S. labor market was well-positioned to take on a modest increase in unemployment.
Powell also noted that rate hikes could also reduce the number of job openings without increasing unemployment.
Sen. Warren noted Tue. that the Fed projected that unemployment would increase 1.2 points by the end of 2023.
3. Powell also called on Congress to raise the debt ceiling to prevent "extraordinarily adverse" damage to the economy.