WASHINGTON: The impact of the conflict in Ukraine on the US economy is “highly uncertain,” and the central bank will need to adjust quickly to ensure the post-pandemic recovery continues, Federal Reserve Chair Jerome Powell said Wednesday.
With prices rising at the fastest pace in four decades and oil soaring above $100 a barrel due to the war, the Fed chief repeated that policymakers are ready to raise interest rates to tamp down inflation.
However, “The near-term effects on the US economy of the invasion of Ukraine, the ongoing war, the sanctions, and of events to come, remain highly uncertain,” he said in his semi-annual testimony to Congress. “We will be monitoring the situation closely.”
Fed officials in recent days have indicated they may be more cautious about raising the benchmark borrowing rate to cool the economy amid the renewed uncertainty. While rising oil prices could fuel faster inflation, sanctions on Russia over the invasion and other spillovers could slow the economic recovery.
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Setting policy in the current environment “requires a recognition that the economy evolves in unexpected ways,” Powell said, adding, “We will need to be nimble in responding to incoming data and the evolving outlook.”
Powell, who is set to appear before the House Financial Services Committee on Wednesday, said the central bank’s goal is to “promote a long expansion” to ensure all segments of society benefit from the growing economy.
But “high inflation imposes significant hardship” on Americans and the Fed will use all its tools to ensure the higher prices do not become entrenched, he said.
The inflation wave has been driven in large part by supply chain bottlenecks that “have been larger and longer lasting than anticipated.”