“We feel the economy is very strong and we will be able to tolerate tighter monetary policy,” Federal Reserve Chairman Pro Tempor Jerome Powell told reporters during the press conference following the meeting on Wednesday.
Prices have risen over the past year for the majority of Americans, pushing inflation well above and forcing the Fed’s long-term 2% target. The central bank has a dual mandate to keep prices stable and employment at a maximum.
Powell said that all expectations of factors that could lower inflation — such as an improvement in supply chain deadlocks and an increase in labor force participation — did not materialize. So the Federal Reserve had to act.
Between a strong labor market and high inflation, only half of the Fed’s mandate has been fulfilled.
What will the Fed do next?
Central bankers also revised their inflation forecasts down to an average of 4.3% by the end of the year, compared to the 2.6% forecast in December.
Meanwhile, US economic growth has fallen to an average of 2.8% this year, from the 4% expected in December.
Powell said on Wednesday that the fallout from the Russian-Ukrainian conflict will hit the US economy and already put upward pressure on inflation.
“The implications for the US economy are highly uncertain, but in the near term, the invasion and related events are likely to put additional upward pressure on inflation and weigh on economic activity,” the Fed said in a statement on Wednesday.
But there is no cause for concern yet.
“We think that’s going to hurt the GDP somewhat; 2.8% is still really solid growth,” he said. “We feel the economy is very strong and we will be able to tolerate tighter monetary policy.”
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