Speaking yesterday at the European Central Bank’s (ECB) annual economic policy conference in Portugal, Federal Reserve Chairman Jerome Powell vowed to keep raising interest rates even if it means risking an economic recession, the Wall Street Journal quoted him as saying. Ignoring the actual causes of inflation and the solution—Glass-Steagall, bankruptcy reorganization—Powell insisted that “the bigger mistake to make…would be to fail to restore price stability.” The Fed doesn’t have the luxury of raising rates slowly, he warned. “There’s a clock running here,” and “there’s no guarantee of a more benign outcome…. The process is highly likely to involve some pain, but the worse pain would be in failing to address this high inflation and allowing it to become persistent.”
Pain? Bill Dudley, former chair of the all-powerful Federal Reserve Bank of New York, wrote in his June 22 Bloomberg column that recession in the U.S. is “inevitable” within 12 to 18 months. “If you’re still holding out hope that the Federal Reserve will be able to engineer a soft landing in the U.S. economy, abandon it,” he warned. This is the man, who, in a May 11 interview with Bloomberg Surveillance, said the Fed should stop “sugarcoating” how high interest rates could go. “I think it’s 4 to 5 percent or higher,” he said at the time, “and it wouldn’t shock me if I’m 5 to 6 a few months from now.”
