Federal Reserve Chair Jerome Powell is returning to Congress for a two-day hearing as inflation pressures remain at the forefront of discussion. Powell has stated that the “disinflation” process has begun, though it will take longer than initially anticipated. With the economy still expanding, the risk of a recession is minimal, but inflation continues to rise, which may require even more work to combat. Powell will be tasked with convincing Democrats that the Fed’s aggressive hikes will not cause a recession while assuring Republicans that the Fed will send rates high enough to quash inflation.

Inflation remains at the forefront

When Federal Reserve Chair Jerome Powell last appeared before Congress, in June 2022, inflation had reached a four-decade high of nearly 9% and showed no sign of easing. This week, Powell returns to Capitol Hill for two days of hearings under far different circumstances.

“The disinflation momentum we need is far from certain,” Mary Daly, president of the Federal Reserve Bank of San Francisco, said in a speech Saturday. “It’s clear there is more work to do.”

Bringing inflation down to target level

Many economists say they think inflation will keep falling to roughly 3.5% or 4% but could plateau at that level. Getting it down to the Fed’s 2% target level could require more pain in the form of widespread job losses.

Powell’s challenge

That high-risk quandary will put Powell in a delicate spot during the congressional hearings Tuesday and Wednesday. He will have to placate Democrats worried that the Fed’s aggressive hikes will cause a painful recession while reassuring Republicans that the Fed will send rates high enough to quash inflation.

More work to do

Fed officials warned last week that their benchmark rate might have to go higher this year than their previous forecast of roughly 5.1%. Christopher Waller, a member of the Fed’s seven-member Board of Governors, said he believed that if the economy remained as hot as it appeared in January — when a half-million jobs were added — the Fed’s key rate would have to top 5.4%.

Some Democrats urge raising inflation target

Some congressional Democrats may urge the Fed to raise its inflation target to 3% and argue that it isn’t worth risking a deep recession just to lower inflation by 1 more percentage point. Yet so far, Powell has made clear that he opposes any such change out of concern it would undermine the Fed’s inflation-fighting credibility. Other officials have echoed his views.