Federal Reserve Chairman says the war in Ukraine might create higher inflation

on Mar 5, 2022
  • The Federal Reserve chairman believes they have a strong enough economy to manage higher borrowing costs.
  • The economic consequences of the Russia-Ukraine war leads to energy price increase.
  • Consumer prices are rising faster than they've ever done in forty years, having risen 7.7% in January.

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Jerome Powell, Federal Reserve Chairman, said the conflict in Ukraine might create a rise in inflation. The central bank expects this setback would diminish price pressures in the coming months. However, because of the role Russia plays in the global energy market, Powell said that they’re going to see an increase in inflation for a while. 

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Simultaneously, the Fed Chair said he’s committed to slowing down the rate of inflation however he can, underscoring the Federal Reserve’s high-risk challenge in increasing rates enough to better control price increments without causing another recession. 

Official statements 

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 Jerome Powell said:

What we know so far is that commodity prices have moved up significantly, energy prices in particular. That is going to work its way through the US economy in the form of higher inflation, at least in the short term.

The Federal Reserve Chair continued to say:

We could see risk sentiment decline so you could see lower investment. You could see people hold back on spending. It is hard to see what the effect on both supply and demand will be. We need to be alert and nimble as we make decisions in what is quite a difficult environment.

Senate Banking Committee address 

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The Federal Reserve chairman told the Senate Banking Committee that he believes they have a strong enough economy to manage higher borrowing costs. His confident expressions echoed the testimony made on Wednesday, which stated that the Federal Reserve could create soft landing where the economy slows down enough to help ease inflation even while growth remains healthy. 

The economic consequences of the Russia-Ukraine war are commodity price increases, which leads to energy price increases. Powell said that this was going to make its way to the United States economy. He claimed that consumer prices are rising faster than they’ve ever done in forty years, having risen 7.7% in January compared to the earlier twelve months. 

Gas prices have risen 40% over the last twelve months. Most economists feel that the rise in inflation is because of a labor shortage and factors resulting in a bottlenecked supply chain. 

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