The ability of the U.S. Federal Reserve to manage inflation and grow the economy depends on global conditions, Chairman Jerome Powell told Marketplace.
“Geopolitical events going on around the world . . . are going to play a very important role in the economy in the next year or so. So the question whether we can execute a soft landing or not, it may actually depend on factors that we don’t control,” Powell said.
Previously, the Fed listed Russia’s invasion of Ukraine and China’s COVID-zero measures as risks for inflation. The war has stopped exports from both Russia and Ukraine, driving up commodity prices of goods such as wheat and sunflower oil, among other products. Also, the cessation of Russia’s gas supply has spiked gas prices. Similarly, the lockdown in China has forced factories to shut down and ports to become backed up, disrupting supply chains and slowing exports.
“Economies all around the world have been hit by a series of inflationary shocks,” said Powell. “We’re all facing the same kind of issues.”
The European Union experienced annual inflation of 7.8% in March, the highest recorded rate since the euro was implemented in 1999. Factory and consumer prices in China shot up 8% in April, exceeding estimates of 7.8%.
Powell said he hoped to “get inflation back down to 2% without having the economy go into recession, or, to put it this way, with the labor market remaining fairly strong.”
The U.S. Labor Department reported an annual rate of inflation of 8.3% in April, compared to the 8.5% recorded in March, a four-decade high. Additional 50-basis point hikes were likely in June and July, Powell told Marketplace. The Fed raised interest rates by half a percentage point in early May in an effort to tamp down inflation.
