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Federal Reserve Chair Jerome Powell acknowledged Thursday that the Russian invasion of Ukraine could drive inflation even higher in the US economy – with surging oil and energy prices resulting in more expensive bills for Americans.
Powell made the frank admission during an appearance before the Senate Banking Committee, telling lawmakers the financial impact of the Russia-Ukraine war remains “highly uncertain.” The conflict has complicated the Fed’s task of cooling inflation without hurting the US labor market or the economy’s overall recovery from the COVID-19 pandemic.
“Commodity prices have moved up significantly, energy prices in particular,” Powell said. “That’s going to work its way through our US economy. We’re going to see upward pressure on inflation, at least for a while. We don’t know how long that will be sustained for.”
The US benchmark oil index was approaching $110 per barrel on Thursday. Analysts have warned that prices could surge even higher if Russia’s invasion results in further disruption to the global energy market, which was already struggling to meet surging demand as countries recover from the pandemic.
Despite the uncertainty, Powell indicated he still supports the Fed’s plan to hike interest rates beginning in March in an effort to address inflation – which hit a four-decade high of 7.5% in January.
“I think it’s appropriate for us to be careful in the way we conduct policy, simply because things are so uncertain and we don’t want to add to that uncertainty,” Powell said.
During a Wednesday hearing before a House committee, Powell said he would propose a quarter-percentage-point hike to interest rates at the Fed’s next meeting later this month. The central bank is expected to hike rates multiple times this year.
Energy and gas prices are a source of major pressure on US households. The national average price of a gallon of gasoline is $3.73 – 30 cents higher than it was just one month ago, according to data from AAA. Gas prices are up 40% over the last year.
The Post previously reported that gas prices could hit $5 or higher in the weeks ahead – especially if Russian oil shipments are interrupted.
Powell and other economists have largely attributed the recent surge in inflation to a tight labor market and lingering supply chain disruptions related to the COVID-19 pandemic. The Fed chair acknowledged that the Russia-Ukraine war could prolong those supply chain issues.
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