The global financial system is depending on U.S. inflation to decrease, and the Federal Reserve is committed to making sure that happens, Chairman Jerome Powell said in mid-June.
“The Federal Reserve’s strong commitment to our price stability mandate contributes to the widespread confidence in the dollar as a store of value. To that end, my colleagues and I are acutely focused on returning inflation to our 2 percent objective,” Powell said at a Fed-sponsored conference on the global role of the U.S. currency.
Powell made the statement two days after the Federal Open Market Committee voted to increase the benchmark interest rate by three-quarters of a percentage point. The rate is used to set borrowing costs for short-term loans and also affects consumer products such as credit cards, home equity loans, and auto financing.
The consumer price index in May was up 8.6% over last year, the latest indication that inflation is soaring in the U.S. Two percent inflation is widely considered to be a healthy rate for a growing economy. The Fed will continue raising rates until prices normalize, it said.
Powel focused on the impact of inflation globally rather than on individual wallets. “Meeting our dual mandate also depends on maintaining financial stability,” he said. “The Fed’s commitment to both our dual mandate and financial stability encourages the international community to hold and use dollars.”
He referenced the financial vehicles the Fed has put in place, including the pandemic measure that loaned money to global central banks in need of liquidity. He also talked about changes to the global financial system, such as the use of digital currencies and online payments systems. One such system, FedNow, is “a new instant payment service that the Federal Reserve Banks themselves are developing to enable financial institutions of every size, and in every community across the U.S., to provide safe and efficient instant payment services in real time, around the clock, every day of the year." FedNow is expected to be available in 2023.