Ovunc Kutlu
16 March 2022•Update: 17 March 2022
ANKARA
Financial and economic implications for the global and US economies because of the Ukraine-Russia war are 'highly uncertain,' Federal Reserve Chair Jerome Powell said Wednesday.
"Although the invasion of Ukraine and related events represent a downside risk to the outlook of economic activity, FOMC participants continue to foresee solid growth," Powell said at a news conference after the Fed made its first hike since December 2018.
The Federal Open Market Committee (FOMC) announced it raised interest rates by 25 basis points to between the range of 0.25% - 0.50%.
"Higher energy prices are driving up overall inflation," said Powell. "The surge in the prices of crude oil and other commodities that resulted from Russia's invasion of Ukraine will put additional upward pressure on near-term inflation here at home."
"In addition to the direct effects from higher global oil and commodity prices, the invasion and related events may restrain economic activity abroad and further disrupt supply chains, which would create spillovers to the US economy through trade and other channels," he said. "The volatility in the financial markets, particularly if sustained, could also tighten credit conditions and affect the real economy.”
The Fed chair said high inflation imposes higher costs, especially for food, housing and transportation.
He said the Fed expects inflation to return to its 2% target by starting its monetary tightening with the labor market remaining strong.
"Inflation is likely to take longer to return to our price stability goal than previously expected," he said.
“We are attentive to the risks of potential upward pressure on inflation and inflation expectations," he added.
While the FOMC estimates inflation to average 4.3% for 2022 and 2.7% for 2023, forecast for 2024 put it at 2.3%, according to its projections released Wednesday.
The Fed's median federal funds rate projection was raised to 1.9% for 2022, which means the central bank can hike rates by 25 basis points in each of its remaining six meetings this year.
Powell said the federal funds rate projection was a full percentage point higher than a previous projection in December.
"Of course, these projections do not represent a committee decision or plan, and no one knows with any certainty where the economy will be from a year from now," he said.
Powell said the Fed will be looking at "evolving conditions" and if the FOMC finds it appropriate to move more quickly in interest rate increases, then it will do so.
"I can't be perfectly specific about it, but that's certainly a possibility as we go through the year," he said.
The Fed Chair said the American economy is "very strong and well-positioned to handle tighter monetary policy."
Asked whether there is a possibility of a recession in the US in the near term, Powell said the probability of a recession next year is "not particularly elevated."
He stressed that aggregate demand and the labor market are currently strong, payroll job growth is continuing at high levels while household and business balance sheets are strong as well.
