July 3, 2022

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‘Rising interest rates could cause a recession’



It is “certainly” that the need to contain inflation by raising interest rates could lead to a recession in the US. acknowledged by the Chairman of the Federal Reserve, Jerome Powell, in the first two days of congressional hearings. “We try not to cause a recession and we don’t think it’s necessary to go that far, but we think it is absolutely necessary” to slow inflation, the US central bank chief explained. Consumer price growth in the United States has not reached levels never reached in the past 40 years, primarily driven by a sharp increase in demand, an expanding labor market and fiscal stimulus policies launched by the government during the COVID-19 pandemic. More recently, inflation has also been fueled by the fallout from the war in Ukraine, a sharp rise in fuel prices on international markets, and problems in global distribution chains.

Last week, the Federal Reserve raised interest rates by 0.75 percent, as it has not done in the past 20 years, and announced that it is ready to repeat the move again next July if necessary. Powell explained that the central bank’s goal is to cool economic growth to contain inflation, but without causing a recession. The events of the last few months in the world have made it difficult for us to achieve the goals set. “But we never said it was going to be easy,” Powell told the Senate Banking Committee. As had already been expected by the national press, the Fed chair made it clear that the US central bank would keep raising interest rates until it “sees clear signs of inflation slowing toward a target 2 in cent”.

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