However, it is not clear how Russia’s invasion in Ukraine will impact the U.S. economy. The remarks by the head of the central bank come at a time when the United States is facing high inflation and prices rising at their fastest pace in 40 years.
Powell stated Wednesday that he believes it would be appropriate to increase the target range for federal funds rates at the March meeting within a few weeks. Powell spoke at a hearing before the House Financial Services Committee about the state of the economy. “And I’m inclined and willing to support a 25-basis point rate increase.”
Powell stated that he believes inflation will rise and then begin to fall this year. Powell supports a.25% increase in the interest rate, but he stated that the central bank will “move more aggressively at future meetings” — leaving the door open for 0.5% rate increases if inflation rises or persists.
Officials are considering multiple factors as they make their decision. Powell stated that the Fed will be careful.
The United States and its allies placed historic sanctions against Russia after the invasion of Ukraine. They also restricted trade with Russia. Privatized businesses are also cutting ties. The ruble fell 30%, and the Russian stock exchange lost 40%. At more than $100 per barrel, the crude oil price hit its highest level since 2014. However, it will take some time for Americans to see the full effect of such actions on their wallets.
“The oil price depends on the events that have yet to occur. It all depends on what happens in the future. Prices have risen in the last few days, as well. They’ve risen quite significantly since three months ago, when the incident started. Powell stated that the effects of this will be felt in gas prices, lower economic activity, and inflation – headline inflation.
Powell acknowledged there could be unexpected, unintended effects of the sanctions and other actions against Russia. However, he refused to give specifics. He said that the U.S. has not had many interactions with Russia’s economy so any effect would be indirect.
Some Republican lawmakers are calling on the Biden administration’s to increase its energy production capabilities as energy prices rise. Powell did not respond to the call to increase oil supply, stating that energy policy was the responsibility of Congress and the Biden administration.
During his State of the Union speech Tuesday, President Biden stated that getting prices under control was his number one priority. Biden demanded that the U.S. produce more semiconductors and cars, and less dependence on foreign supply chains.
Biden stated in his speech that economists refer to it as “increasing our economic productive capacity.” It is what I call building a better America.
The president called on the government to crack down on overcharging companies and to alleviate the pain of inflation through lowering everyday costs such as child care and health insurance.
While the Biden administration is pushing for such steps in some detail, White House economists acknowledge that addressing supply-side constraints is not an immediate solution to rising inflation and that the Fed is responsible.
Powell stated that the central bank has all the tools necessary to control inflation, but they need to make sure they have help from the supply side to do so.
