Jerome Powell, Chairman of the Federal Reserve Board, speaks to reporters after the Federal Reserve raised its target interest rate by three-quarters of a percentage point during a news conference following a two-day meeting of the Federal Open Market Committee in a bid to stem a disruptive rise in inflation (FOMC) in Washington , U.S., June 15, 2022.
Elisabeth Franz | Reuters
Federal Reserve Chairman Jerome Powell reiterated the central bank’s commitment to bringing down inflation, saying Friday it was essential for the global financial system.
“The Federal Reserve’s strong commitment to our price stability mandate contributes to widespread confidence in the dollar as a store of value. To that end, my colleagues and I are intensely focused on returning inflation to our 2 percent target,” Powell said in opening remarks for a Fed-sponsored conference on the global role of the US currency.
The comments come two days after the Federal Open Market Committee decided to raise interest rates by three-quarters of a percentage point to a target range of 1.5% to 1.75%. Banks use the interest rate to set the cost of borrowing for short-term loans they extend to each other, but it also affects a variety of consumer products, such as credit cards, home equity loans, and auto financing.
Inflation has skyrocketed over the past year, with the consumer price index posting an 8.6% year-on-year increase in May.
Fed officials are targeting 2% inflation as healthy for a growing economy and have said they will keep raising rates until prices return to that range.
While inflation hurts consumers through the prices they pay at the grocery store, at the pump and through a host of other activities, Powell’s comments on Friday focused on its global financial implications.
“Fulfilling our dual mandate also depends on maintaining financial stability,” Powell said. “The Fed’s commitment to both our dual mandate and financial stability encourages the international community to hold and use dollars.”
In addition to price stability, the Fed has the task of maintaining full employment.
Noting the dollar’s importance in global financing, Powell specifically cited the importance of vehicles such as the one set up by the Fed during the Covid pandemic, which lent greenbacks to global central banks in need of liquidity.
He also pointed to upcoming changes in the global financial system, including the use of digital currencies and payment systems like FedNow, a service expected to come online in 2023.
A digital currency like the one being discussed by Fed officials could help prop up the dollar as the world reserve currency, he said.
“Looking ahead, rapid changes are taking place in the global monetary system that could impact the international role of the dollar in the future,” Powell added.