Federal Reserve Chairman Jerome Powell reiterated the central bank’s commitment to bringing down inflation, saying Friday that it’s essential for the global financial system.
“The Federal Reserve’s strong commitment to our price stability mandate contributes to the widespread confidence in the dollar as a store of value. To that end, my colleagues and I are acutely focused on returning inflation to our 2 percent objective,” Powell said in introductory remarks for a Fed-sponsored conference on the global role of the U.S. currency.
Those remarks come two days after the Federal Open Market Committee voted to raise benchmark interest rates by three-quarters of a percentage point to a targeted range of 1.5%-1.75%. Banks use the rate to set borrowing costs for short-term loans they provide to each other, but it also feeds through to a multitude of consumer products like credit cards, home equity loans and auto financing.
Inflation has been soaring over the past year, with the consumer price index in May posting an 8.6% increase over the past year.
Fed officials target 2% inflation as healthy for a growing economy and have said they will continue raising rates until prices return to that range.
While inflation hurts consumers through the prices they pay at the grocery store and gas pump as well as a multitude of other activities, Powell’s Friday remarks focused on its global financial importance.
“Meeting 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 a addition to price stability, the Fed is charged with maintaining full employment.
Powell cited the importance of the dollar in global financing, noting in particular the importance of vehicles such as the one the Fed put in place during the Covid pandemic that loaned greenbacks to global central banks in need of liquidity.
He also noted coming changes in the global financial system, including the use of digital currencies and payments systems like FedNow, a service expected to come online in 2023.
A digital currency, as has been discussed by Fed officials, could help support the dollar as the world’s reserve currency, he said.
“Looking forward, rapid changes are taking place in the global monetary system that may affect the international role of the dollar in the future,” Powell added.