Yesterday, Powell told Senate lawmakers that although the odds of recession “are not elevated,” he said that it was “certainly a possibility” as rates climb, but that he believes the U.S. economy is "very strong” and will be able to handle tighter monetary policy. He reiterated his stance that the aggressive rate hikes are necessary because “it is essential we bring inflation down.”
Powell also highlighted that some price increases are beyond the Fed’s ability to control, such as the recent rise in gasoline and oil prices, fueled by global forces. Yesterday, President Biden called for Congress to suspend the federal fuel tax for three months to ease prices at the pump for U.S. drivers.
Powell said the central bank would continue its rate hike campaign until it sees clear signs that inflation is moving toward the Fed’s 2% target. Fed policy members' projections show they now expect rates to rise to a range between 3.25% to 3.5% by the end of 2022. The federal funds rate is currently between 1.5% and 1.75%.
"Investors are still getting used to the Fed’s uncertainty and future plans to hike rates, which is why capital markets have been so volatile lately. Until there is evidence that the Fed's plan is working, markets will remain volatile," said Caleb Silver, Editor-in-Chief of Investopedia.