Fed chief to Congress: Russia invasion in Ukraine has ‘highly uncertain’ implications for US economy
The Washington Post March 2, 2022
WASHINGTON - Federal Reserve Chair Jerome Powell told lawmakers on Wednesday that as Russia’s war escalates in Ukraine, “the implications for the U.S. economy are highly uncertain,” adding to the Fed’s challenge of tackling inflation and shepherding the broader recovery.
Powell also said he supported a moderate rate hike at the upcoming meeting in mid-March, adding that he was “inclined to propose and support a 25 basis point rate hike,” while testifying before the House Financial Services Committee.
For months, Fed officials have been signaling an interest rate hike at the March meeting, but Powell’s comments on Wednesday marked the first time he has suggested how far they should be raised.
Powell cautioned that it was too soon to tell exactly how the war would shape policymakers’ upcoming meeting in mid-March. But he said he favored a moderate rate hike to kick off a series of increases in 2021, given a tight labor market and a pledge to move more aggressively if inflation worsens.
Powell and his colleagues have held off on specifying an exact number of rate hikes in 2022. But markets and analysts increasingly expect what could be as many as five or six hikes this year, up markedly from the three hikes Fed policymakers penciled in when they released economic projections in December.
“It is appropriate for us to move ahead,” Powell said Wednesday. “Inflation is high, too high. The committee is committed to using our tools to bring it back down.”
Inflation has already soared to 40-year highs, and Russia’s invasion of Ukraine has heightened uncertainty about energy prices for American consumers and broader repercussions for the global financial system. As oil prices climbed to well over $100 a barrel, the U.S. and other world powers on Tuesday agreed to release 60 million barrels of oil from their reserves in an attempt to bring costs down.
“We can’t know how large or persistent those effects will be,” Powell said of the crisis in Ukraine. “That simply depends on events to come.”
Atlanta Fed President Raphael Bostic said on Tuesday that the war in Ukraine further complicated the picture of the economy, especially when it comes to energy costs and global supply chains.
“All of the turmoil we have today is just going to exacerbate that uncertainty,” Bostic said. “Our hard job just got a whole lot harder.”
The challenge facing the Fed comes as Americans are gloomy about the economy. Inflation is one of the most tangible ways people view and experience it, weighing on President Joe Biden’s approval ratings. The White House often touts strong job growth in 2021, and wage gains for lower-income workers, as hallmarks of the pandemic recovery. But inflation has upended that rosy picture.
“With all the bright spots in our economy, record job growth, higher wages, too many families are struggling to keep up with the bills,” Biden said Tuesday during his State of the Union address. “Inflation is robbing them of the gains they might otherwise feel.”
While Powell’s testimony will offer a fresh lens into his thinking, he’ll probably have a clearer snapshot of the economy after his appearances on the Hill this week. On Friday, the Labor Department will release jobs data for February, with the expectation that the February figures will build on the stronger-than-expected addition of 467,000 jobs in January. And next week, the Bureau of Labor Statistics will release February inflation data, which is expected to climb higher than the 7.5% notched in January.
Meanwhile, a holdup over the Fed’s own leadership complicates the path ahead. Biden has made five nominations to the central bank, including the reappointment of Powell. But the nominees have yet to be confirmed since Republicans on the Senate Banking Committee, which vets Fed nominees, raised concerns over Sarah Bloom Raskin, Biden’s pick to be the Fed’s top banking regulator.
On Thursday morning, Powell appears before the Senate Banking Committee.