By: Ken Chase.
Estimated reading time: 2 minutes
With Federal Reserve Chairman Jerome Powell declaring last week that the Fed will not allow inflation to become a long-term problem in the U.S., some experts are now anticipating new interest rate hikes that may prove challenging for the nation’s economy. Charles Scharf, CEO of Wells Fargo, suggested as much in recent comments as he asserted that the U.S. economy is not well-positioned to handle the “significant” rate hikes he sees on the horizon.
According to Scharf, the real impact of any future interest rate increases is not being fully considered by policymakers, businesses, or consumers. He notes that everyone seems to understand that rates will rise, since the Fed has made that abundantly clear in statements over the last several weeks. “We know that consumers and businesses, while strong today, are going to see deterioration, and we’re going to act surprised when it happens,” he said.
Scharf’s comments came on the heels of recent statements from Powell at a European Central Bank event, in which he made clear that the Fed intends to do whatever it takes to prevent inflation from becoming a bigger problem:
“The risk is that because of the multiplicity of shocks you start to transition to a higher inflation regime. Our job is literally to prevent that from happening, and we will prevent that from happening. We will not allow a transition from a low-inflation environment into a high-inflation environment.”
The Fed chief has repeatedly signaled that additional rate hikes will be arriving over the course of 2022 and into 2023, though the Federal Reserve will continue to monitor inflation for signs that it is retreating from its current high rate. Powell has consistently noted the importance of lowering inflation to the Fed’s target 2 percent rate, which is well below the current rate of more than 8 percent.
Though he may believe that the economy is not fully prepared for the coming rate hikes, Scharf is anything but pessimistic about the nation’s ability to weather any coming economic storm. “We’re going into this stronger than we’ve ever been,” he said. “We’ve got the legislators, regulators, the Fed, who have extraordinary conviction, who have extraordinary tools, and that makes me feel pretty good about our ability to get through something.”