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Fed Chair Jerome Powell plans to continue interest rate hikes, which he warns could lead to a recession

Powell told the Senate Banking Committee that, despite the Federal Reserve's plans, a "soft landing" for the economy will be tough.
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Federal Reserve Chairman Jerome Powell signaled the U.S. economy is at risk of tipping into a recession.

Despite the central bank's best efforts to pull down inflation by increasing interest rates and slowing demand, he warned Wednesday that the soft landing for the economy the Fed had been working toward could be "very challenging."

"The other risk, though, is that we would not manage to restore price stability and that we would allow this high inflation to get entrenched in the economy," Powell said at a Senate Banking Committee hearing.

"We can't fail on that task. We have to get back to 2% inflation."

The central bank generally views 2% inflation as the normal, desired baseline. As of May, the inflation rate sat at 8.6%, a 40-year high.

The Fed has raised interest rates three times since March, and it said it would continue on that path through the rest of the year. Powell said central bank officials "anticipate that ongoing rate increases will be appropriate."

Worries about economic turbulence have grown in recent months as consumer prices climb on multiple fronts — from gas prices and groceries to airfares and real estate.

Market watchers say the Fed is trying to thread the needle of cooling inflation while not tanking the broader economy.

“Powell and his colleagues are walking a monetary policy tightrope hoping to avoid a recession while dampening demand,” Mark Hamrick, a senior economic analyst at Bankrate, said in a note.

So far, he said, the Fed’s actions have caused stocks to fall and made borrowing much more expensive, especially in the housing market, where mortgage rates are the highest in over a decade.

Investors seemed to shrug off Powell's remarks. The Nasdaq, the S&P 500 and the Dow Jones Industrial Index were all in positive territory at midday Wednesday.