US Inflation Suggests Need to Accelerate Rate Hikes, Fed Chief Powell Says

WASHINGTON (Sputnik) - The unyielding inflation growth in the United States suggests that the Federal Reserve needs to accelerate rate hikes, probably even make them restrictive, to curb price pressures already at 40-year highs, Federal Reserve Chairman Jerome Powell said Wednesday.

"I think that the most recent inflation indicators, [the] various kinds, suggest to us that we need to accelerate the pace at which we can get up to a level that is neutral," the Fed chief said in his biannual testimony to the US Senate Banking Committee. "And we know we need to have restrictive policy, and that's where we're headed."

"Neutral" is Fed speak for bringing inflation back to the central bank’s target of 2% per year versus real US price pressures, which the Consumer Price Index indicated grew by 8.6% in the year to May. A "restrictive policy" is aimed at raising rates high enough that it prohibits price growth from continuing at its present pace.

The US government's goal to achieve economic soft landing through interest rate hikes balanced by a strong jobs market growth has been complicated by events of recent months and could become more challenging going ahead, Powell said.

“I think that is our goal, that's our intention,” the Fed chief said in testimony before the US Senate Banking Committee. “I think it's going to be very challenging. We've never said it was going to be easy or straightforward. It's going to be challenging and the events of the last few months have certainly made it more challenging. Nonetheless, there are pathways through which that could happen.”

The US economy experienced a negative growth of 1.4% for the first quarter. If it does not return to positive growth by the second quarter, it will technically be in a recession, given that it takes just two straight quarters of negative growth to make a recession.

Inflation, as indicated by the Consumer Price Index, grew at an annualized rate of 8.6% in May - more than four times the Federal Reserve’s target.

The US central bank's preferred rate of inflation is 2% per year and it has vowed to raise rates as high and long as necessary to bring price growth back to its annual target. The Federal Reserve announced last week its stiffest US rate hike in 28 years to fight inflation, adding a three-quarter point that brought key lending rates to as high as 1.75% from May’s peak of 1%.

Economists, however, fear that the Fed will push the US economy into a recession with the way it’s going with rate hikes.

The US economy has already shown a negative growth of 1.4% for the first quarter. If it does not return to the positive by the second quarter, the United States will technically be in a recession, given that it takes just two straight quarters of negative growth to make a recession.

Fed Chair Jerome Powell denied assertions last week that the central bank was pushing the country toward recession, even as he expressed doubts about whether the central bank could achieve a so-called soft landing for the US economy.