Powell’s Warnings: Inflation and High Rates Could Hurt the Economy

Federal Reserve Bank chairman Jerome Powell is concerned about the high holding rates. He is deeply concerned that it would hurt the U.S. economy. As a result, this would affect businesses and households across America. 

High Holdings Could Negatively Impact the Economy 

In a two-day appearance at Capitol Hill, Jerome ‘Jay’ Powell, the Chair of the Fed Reserve, said in a speech, “Reducing policy restraints too late, or too little could unduly weaken economic activity and employment.”

Positive Outlook Overal 

CNBC News reported the Fed Chair also mentioned a positive outlook based on his talk. Powell said the easing of current inflation can assist in the 2% goal strived for. He also noted that the labor market and the economy looked good. 

The Positive Outlook Could Change 

Powell mentioned that despite the positive aspects noted, he was still worried about the negative impact certain aspects could cause. 

Adding to Challenges 

Some economic challenges Powell said included “elevated inflation” due to lowering inflation via a market cooling period. 

Cooling Period: A Double-Edge Sword

According to Powell, while a cooling period helps, it has long-term negative repercussions. In this case, lasting high inflation is a possible problem that could also be bad for the economy. 

Inflation Increased Above 2% Since 2021

CNBC reports that the inflation rate in the U.S. has not been below 2% since 2021, and the efforts to reduce it continue. 

Inflation Rate Steadily Decreasing 

CNBC reported that the Federal Reserve Bank has felt positive about inflation’s decline. 

Improved Statistics

Compared to the rate of 2022, which was reportedly at 7%, it has since dropped to 2.6%. However, the push to reach the 2% goal is still in progress. 

Fed Officials Meet Over Inflation 

CNBC officials were reportedly split on their opinions of the impact of inflation on the economy. Some said that the Fed would need to increase target funds if inflation persists over a prolonged period. 

Sudden Vulnerable Economy

Officials commented that the reserve needed to be prepared for “economic weakness.” According to CNBC, the Federal Reserve Bank meeting minutes did not specify how many members were present or who commented on what. 

“Economic Weakness”

 A weak economy could develop suddenly, according to officials in CNBC reports. This phenomenon could result if the inflation rate stays high or increases even further from its current state. 

Haven’t Met the Target Yet

In his speech, Powell said that after the 2% target inflation had yet to be met, the recent readings still showed minimal progress. He also added that “more good data would strengthen our confidence that inflation is moving sustainably towards 2%.”

Staying “Neutral”

CNBC reported that Jerome Powell was known for steering clear of delivering any impactful economic speeches. It would seem that having expressed his concern for the economy may have changed this a bit. 

Questions to Follow 

Powell is reportedly due to answer questions from the Senate Banking Committee members. The House Financial Services Committee will also ask the Fed Chair questions.   

A Lot Going On 

It could become “contentious,” CNBC reported in the question-answer sessions between Powell and the committees. The possible “tension” could be influenced by the current political affairs on the verge of U.S. elections. 

A Bit Edgy

“Washington is on edge,” the report said, which is one of the reasons it could become controversial in the process of Powell addressing the two committees. 

The Impact of Unemployment 

Senator Sherrod Brown expressed that he was concerned about high inflation affecting jobs. He said if the Federal Reserve delayed lowering the rates, it would undo all the hard work put into creating better-paying jobs.  He also added that workers had “too much to lose” if they lost their jobs. 

State of Employment

The effects of the economy and inflation rates can result in an increase in unemployment. The rate of unemployment had already been higher. Still, there are also reports that it increased slightly during June. The U.S. Bureau of Labor’s statistics show an “unexpected” rate of unemployment increase of 4%.  

Household Employment Rates

Statistically, households with part-time jobs increased to 50,000, while full-time work decreased by 28,000. 

“Riding the Wave”

U.S. families can only wait in anticipation for the state of the economy to improve and for inflation rates to be less negatively impactful.

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Featured Image Credit: Shutterstock  / Domenico Fornas .

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