Fed Chairman admits: perhaps should raise interest rates earlier and commit to flexible response to inflation

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Federal Reserve Chairman Powell recently shared some views on inflation issues. He stated that looking back, perhaps taking action to raise interest rates earlier would have been more beneficial. However, he emphasized that the decisions made at the time were based on the information available in real-time, and the Federal Reserve has made every effort to respond.

Recently, Powell admitted during an interview on a certain radio program that the Federal Reserve has faced increasing criticism for being "slow to respond" to inflation. He believes that the Federal Reserve could have taken interest rate hikes earlier to curb inflation.

Powell admitted that if he could go back in time, he might consider starting interest rate hikes earlier. However, he also stated that he is uncertain about how much impact an earlier rate hike would have, emphasizing that the Federal Reserve made decisions based on the real-time information available at that time.

It is worth noting that Powell has recently been confirmed for a second term as Chairman of the Federal Reserve. However, due to the significant rise in prices during his term, he has lost some support from senators.

Looking back at last year, the Federal Reserve consistently maintained that the rise in inflation was only "temporary," primarily concentrated in sectors of the economy affected by the pandemic and supply chain disruptions. However, as time went on, the impact of inflation on the economy intensified, and the public felt increasing price pressures in areas such as food, energy, and housing. The effects of high inflation are no longer limited to individual industries but have spread widely across various sectors.

In the face of this situation, the Federal Reserve finally abandoned its "temporary" stance at the end of 2021 and worked to convey to the public that they understand the difficulties people are facing. Powell even held a special press conference last week, expressing a desire to "directly communicate with the American people."

At the press conference, Powell emphasized that the Federal Reserve's top priority is to ensure that high inflation does not become entrenched in the economy. To control inflation, raising interest rates has become the main tool of the Federal Reserve. By raising interest rates, the costs of various loans for households and businesses can be increased, thereby slowing down consumer spending and business investment.

However, the challenge facing the Federal Reserve is how to achieve a "soft landing" for the economy while controlling inflation. Raising interest rates too quickly or too high could hinder economic growth and increase unemployment.

In this interview, Powell clarified his previous remarks, seemingly leaving room for a larger rate hike. He stated that if the economic performance meets expectations, a 50 basis point increase in the next two meetings would be appropriate. However, if the economic performance is better or worse than expected, the Federal Reserve is prepared to adjust the rate hike accordingly.

When asked whether he was considering a 75 basis point rate hike, Powell did not answer directly, but stated that the committee would adjust its policy based on future data and changes in the economic outlook. This shows the Federal Reserve's flexible approach in addressing the inflation issue.