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The Federal Reserve will continue to raise rates until it sees “compelling evidence” that inflation is falling, Fed Chairman Jerome Powell told Congress on Wednesday.

The United States is grappling with inflation rates not seen in 40 years and Powell warned that “more surprises may be in store.”

“Over the next few months, we’ll be looking for compelling evidence that inflation is falling,” Powell said. “We have both the tools we need and the determination it will take to restore price stability.”

Last week, the Fed raised interest rates by 0.75 percentage points – the biggest hike since 1994. Powell and other Fed officials signaled that further outsized hikes are on the way as they are trying to bring inflation down to their target of 2% over the current year. rate of 8.6%.

The Fed’s benchmark federal funds rate currently ranges between 1.5% and 1.75% and is expected to exceed 3% this year. The increase has already led to a spike in mortgage costs. A 30-year fixed-rate loan now costs almost 6%, down from 3.25% at the start of the year.

Powell said rate hikes were needed to depress demand and dampen price increases. But he admitted that many drivers of inflation, including the impact of the war in Ukraine on energy prices and soaring food prices, were beyond the Fed’s control.

Senator Elizabeth Warren criticized the Fed’s rate moves. Gasoline and food prices will not fall because of tariff increases, she argued. “Rate hikes will not force Vladimir Putin to turn around and leave Ukraine,” she said. “I hope you reconsider before you knock this economy off a cliff.”

Raising rates “would make it more expensive to invest, which, in turn, will put people out of work, and when they’re out of work, they’ll have less money to spend,” she said. .

Former Treasury Secretary Larry Summer has argued that the United States needs unemployment, currently at 3.6%, to rise to 5% for five years to contain inflation.

Powell said he would have “a lot of humility” to predict where the economy is heading over the next five years. “But there are certainly avenues to bring inflation down to 2% with less troubling results,” he said.


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