"The conflict is causing enormous difficulties for the Ukrainian people," said the head of the Federal Reserve (Fed) during a hearing before the House of Representatives.
And "the short-term effects on the American economy of the invasion of Ukraine, the ongoing war, the sanctions, and future events, remain very uncertain", he continues.
“We will be monitoring the situation closely,” he also said, noting that Fed leaders will need to show “great flexibility” depending on economic data and the changing outlook for the leading economy. world.
"Making appropriate monetary policy decisions" in the context of war in Ukraine, draconian economic sanctions imposed by the United States and others on Russia, and potentially unpredictable events "requires recognition that the economy is changing in unexpected ways “, he also pointed out.
However, Mr. Powell believes that it remains “appropriate” to raise rates at a meeting on March 15 and 16 in view of inflation.
This could in particular help to moderate prices in the real estate sector, he argued.
He also said he would propose a 0.25% increase in interest rates.
Additionally, if inflation turns out to be higher, "we would be prepared to act more aggressively by raising the fed funds rate by more than 25 basis points at a meeting or meetings" later in the year. year, he added.
The invasion of Ukraine by Russia nevertheless seriously complicates the task of the powerful American financial institution since this offensive took place at a time when prices, in particular of energy, were already very high everywhere in the world, due to the fact insufficient supply and a strong recovery in international demand linked to the lifting of restrictions against the Covid-19 pandemic in many countries.
"Price stability"
In the United States, inflation is already at its highest for 40 years.
And in an attempt to stem the price spiral, the Fed had already indicated that it was going to raise its interest rates, which have been almost at zero since the start of the pandemic.
Since March 2020, key rates have been in the low range of 0 to 0.25%.
Before the conflict in Eastern Europe, some economists expected a significant increase.
Mr. Powell was therefore eagerly awaited on Wednesday and Thursday during his hearings before the American Congress.
For now, he recalled that in the United States, "economic activity has resumed at a steady pace of 5.5% last year, reflecting progress in vaccinations and the reopening of the economy", but also thanks to the support of the Fed and the government.
Moreover, while the rapid spread of the Omicron variant during the winter caused "a certain slowdown in economic activity at the beginning of this year", a rapid decline in contamination cases since mid-January has finally caused a blow of “brief” stop, he believes.
Above all, "the labor market is extremely tight" with 6.7 million jobs created in 2021, "robust job gains in January" and wages which are increasing "at their fastest pace in many years" , he notes.
If we add an unemployment rate that has fallen considerably over the past year, standing at 4% in January, and excluding the war in Ukraine, all the conditions are in place for a series of interest rate hikes this year.
“We know that the best thing we can do to support a strong labor market is to promote sustainable expansion, and this is only possible in an environment of price stability,” also stressed Jerome Powell.
Finally, he reiterated that the Fed still expects inflation to slow “during this year as supply constraints ease and demand moderates”.
© 2022 AFP