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Fed chairman will testify before a pair of Congressional committees this week


Jerome Powell has some explaining to do.


The Federal Reserve chairman leads an agency with two jobs - keep unemployment and inflation low. Unemployment is low, but inflation has been climbing. One of the Fed's tools against inflation is interest rates, and it raised them sharply last week. But that can bring its own economic pain. Starting today, Powell faces questions in Congress.

INSKEEP: And NPR's Scott Horsley will be listening. Scott, good morning.

SCOTT HORSLEY, BYLINE: Good morning, Steve.

INSKEEP: Hasn't Powell been much admired up to now?

HORSLEY: Yeah, he certainly has. He was confirmed to a second term as Fed chairman just last month on a vote of 80 to 19, which shows a rare level of bipartisan backing. That said, inflation is very high, and Americans are not happy about it. And so the Fed chairman is likely to get an earful from lawmakers who've been hearing plenty of complaints themselves from their constituents. The Fed has begun moving aggressively to fight inflation, and Powell says he thinks there's a chance the central bank can bring it down without triggering a recession or a big jump in unemployment. But he acknowledges there are no guarantees.


JEROME POWELL: Our objective really is to bring inflation down to 2% while the labor market remains strong. Many factors that we don't control are going to play a very significant role in deciding whether that's possible or not. There's a path for us to get there. It's not getting easier.

HORSLEY: Powell says a lot's going to depend on how things like the war in Ukraine play out - the war has driven up the price of gasoline and groceries - and, of course, the pandemic, which continues to throw curveballs at the economy.

INSKEEP: Are the higher interest rates, even though this is all very recent, already affecting the economy?

HORSLEY: Yes, you're seeing a squeeze, for example, in the housing market, and that's by design. Mortgage rates have climbed to around 6%, roughly double what they were a year ago, in anticipation of the Fed's move. And as a result, we've seen a drop in home sales and new home construction. Over time, you could see a similar slowdown in other parts of the economy. That's what it means for the Fed to tamp down demand and try to bring prices under control. Powell acknowledged knowing when to stop raising interest rates can be tricky.


POWELL: It's going to be a very difficult judgment to make or maybe not; maybe it'll be really clear. The worst mistake we could make would be to fail, which - it's not an option. You know, we have to restore price stability.

HORSLEY: Now, so far, both the president and Congress have given the Fed plenty of latitude to crack down on inflation. That means borrowing costs are likely to keep going up for anyone who has a credit card balance or who's shopping for a home or car loan.

INSKEEP: Let me ask about some other news here, Scott. The Biden administration wants to do something about gas prices. What's their idea?

HORSLEY: Yeah, the president's asking Congress to temporarily suspend the $0.18 a gallon federal tax on gasoline and the $0.24 a gallon tax on diesel fuel through September in hopes that would cut prices at the pump. In economic terms, this doesn't make a lot of sense. The gas tax hasn't increased since 1993, so it's certainly not fueling inflation. And it's possible that little of the savings from such a tax cut would actually be passed on to consumers. So this could amount to a $10 billion subsidy for the gasoline business. You'd be better off subsidizing bicycles or electric scooters or just about anything else. As a matter of political signaling, though, this proposal does show how desperate the White House is to look as though it's doing something about high gasoline prices, which, by the way, have already fallen about $0.06 a gallon in the last week.

INSKEEP: OK. Happy to pocket that $0.06. Scott, thanks so much.

HORSLEY: You're welcome.

INSKEEP: NPR's Scott Horsley. Transcript provided by NPR, Copyright NPR.

Steve Inskeep is a host of NPR's Morning Edition, as well as NPR's morning news podcast Up First.
Scott Horsley is NPR's Chief Economics Correspondent. He reports on ups and downs in the national economy as well as fault lines between booming and busting communities.