In his remarks to the House Committee on Financial Services, Powell acknowledged the hardship Russia’s invasion of Ukraine is causing on the people there but added: “The implications for the U.S. economy are highly uncertain, and we will be monitoring the situation closely.”
Powell lauded the economy’s recovery from the coronavirus pandemic, noting that since cases of the omicron variant peaked in mid-January, the economic slowdown “seems to have been brief.”
“The improvements in labor market conditions have been widespread, including for workers at the lower end of the wage distribution as well as for African Americans and Hispanics,” he said.
Powell also acknowledged that inflation is running well above the Fed’s stated goal of an average of 2% annually but said the Fed is on track to raise interest rates at its next meeting in the middle of this month.
Political Cartoons on the Economy
None of his comments were a break from the themes he has touched upon in recent testimony and press conferences. Markets have already adjusted to the notion of a steady stream of interest rate hikes this year, as well as the Fed reducing the $9 trillion in assets it holds on its balance sheet.
But the Fed’s moves are complicated by the situation in Ukraine, where Russia’s attacks have seen oil prices spike to beyond $100 a barrel. That alone fuels inflation and any disruptions to global supply chains from sanctions that the U.S. and its allies have imposed, or restrictions on travel or shipping, make matters only worse.
“We continue to expect inflation to decline over the course of the year as supply constraints ease and demand moderates because of the waning effects of fiscal support and the removal of monetary policy accommodation,” he said.