Fed chief admits rate hikes could lead to job losses

Federal Reserve Chairman Frankland conceded on Thursday that aggressive interest rate hikes could cause some Americans to lose their jobs as part of the U.S. central bank's war on inflation.

Powell, who was testifying before the House Financial Services Committee as part of a regular, semi-annual update on monetary policy, said it is certainly possible to control inflation without causing unemployment to rise, but suggested that may not be the case.

The Fed head said that there is a chance that unemployment will go up, from what is historically low level.

Economic projections from the Fed's June meeting show that officials expect the national unemployment rate to climb slightly over the next two years, from the current rate of 3.6% to 3.9% at the end of 2023 and 4.1% at the end of 2024. Powell stated that an unemployment rate of that level would still be very strong, though it means that some workers could be laid off.

His testimony came just one week after the by 75 basis points for the first time since 1994, underscoring how serious policymakers are about tackling the inflation crisis after a string of alarming economic reports. The key federal funds rate is the highest since the pandemic began two years ago, between 1.50% and 1.75%.

Powell said at a press conference that another increase of 75 basis points or 50 basis points is on the table for July as officials try to catch up with runaway inflation. Officials expect the benchmark federal funds rate to hit 3.4% by the end of the year and 3.8% by the end of 2023, a big increase from their March projections.

Goldman Sachs, Bank of America, and Deutsche Bank all raised the odds of a recession in 2022 or 2023, and Powell has conceded that there is a real possibility of a recession.

Hiking interest rates can lead to higher rates on consumer and business loans, which slows the economy by forcing employers to cut back spending. Credit card issuers have raised their rates to 20%, making it the highest since 2008, while some credit card issuers have raised their rates to 6%.

While the central bank is hoping to get a soft landing between consumer demand and inflation without crushing economic growth, Powell admitted that the task is becoming increasingly difficult as inflation continues to surprise to the upside.

It is certainly a possibility, Powell told lawmakers on Wednesday. We are not trying to provoke, and we do not think we need to provoke a recession, but we do think it is absolutely essential that we restore price stability for the benefit of the labor market.