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Fed 'strongly committed' to bringing down inflation 'expeditiously,' Powell says

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June 22 (Reuters) - The Federal Reserve is "strongly committed" to bringing down inflation that is running at a 40-year high and policymakers are acting "expeditiously to do so," U.S. central bank chief Jerome Powell said on Wednesday.

"It is essential that we bring inflation down if we are to have a sustained period of strong labor market conditions that benefit all," Powell said at a hearing before the U.S. Senate Banking Committee, adding that the central bank in coming months will be looking for "compelling evidence" of easing price pressures.

Inflation continues to run well above the Fed's targeted level of 2%. A gauge of price increases that excludes volatile food and energy costs may have flattened out or eased somewhat last month, Powell said, but Russia's Ukraine invasion and COVID-19 lockdowns in China are putting continued upward pressure on inflation.

The Fed raised its benchmark overnight interest rate by three-quarters of a percentage point -- its biggest hike since 1994 -- to a range of 1.50% to 1.75%, and signaled rates would rise another 1.75 percentage points this year.

That steep rate hike path, designed to slow the economy, has sparked widespread concern about a recession and a weakening of labor markets.

To the Senate committee on Wednesday, Powell pledged an "overarching focus" on bringing down inflation and reiterated that ongoing increases in the Fed's policy rate would be appropriate, with the exact pace dependent on the economic outlook.

"Inflation has obviously surprised to the upside over the past year, and further surprises could be in store," he said, adding that policymakers would need to be "nimble" in response to the incoming data.

"The American economy is very strong and well positioned to handle tighter monetary policy," he said.

CHANGING ENVIRONMENT

Powell's remarks to the committee also showed just how much the inflation environment has changed in the three months since he delivered the first of his semi-annual reports to lawmakers.

At that time, he described inflation - which was running at 6% a year by the Fed's preferred measure - as "likely to decline over the course of the year."

Little sign of that has emerged since those remarks, despite 150 basis points of rate hikes so far this year and more to come.

Projections released by Fed policymakers last week showed they expect economic growth to slow to below trend this year while the U.S. unemployment rate - currently 3.6% - starts to tick higher. Meanwhile, they have materially tempered their expectation for how quickly inflation will subside, with a median forecast for a year-end annual rate easing to 5.2% by their preferred measure from 6.3% as of April. In March, they had put that figure at 4.3%.

Prices of fed funds futures contracts have fully priced in a 75-basis-point rate hike at the central bank's July policy meeting and around even odds of a policy rate in the 3.50%-3.75% range at the end of this year.

Powell's remarks to the Senate committee kicked off the first of two days of semi-annual congressional appearances to update U.S. lawmakers on the state of the economy and monetary policy; he will testify before the U.S. House of Representatives Financial Services Committee on Thursday.

(This story corrects typographical error in headline, no change to content)

Reporting by Dan Burns, Ann Saphir, Lindsay Dunsmuir Editing by Paul Simao and Chizu Nomiyama
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