Fed Chairman Jerome Powell warns of sharp rate hikes to contain inflation: Know what he said

There is an “unfortunate cost” of reducing inflation, US Federal Reserve Chairman Jerome Powell said on Friday, indicating that the Fed will hike more rates in the coming days to prevent the economy from diving into recession. In a high-profile speech at the Fed’s annual economic symposium in Jackson Hole, Powell said the Fed remains fully focused on tackling the highest inflation in four decades.

“It will take some time to restore price stability and our tools need to be used coercively to bring demand and supply into a better balance. Containing inflation is likely to require a sustained period of below trend growth,” he said.

In addition, some softening of labor market conditions is likely, the Fed chairman said that day. While higher interest rates, slower growth and a softening labor market will bring down inflation, it will also hurt households and businesses.

“These are the unfortunate costs of reducing inflation. But failure to restore price stability will mean far more pain,” he said.

Inflation is running above 2 percent, Powell said, and high inflation continues to spread through the economy. “While the low inflation readings for July are welcome, the one-month correction falls far short of what the committee needs to see before we are convinced that inflation is going down.”

“We are taking our policy stance purposefully to a level that will be restricted enough to bring inflation back to 2 per cent. At our most recent meeting in July, the FOMC raised the target range for the federal funds rate from 2.25 to 2.5 percent, summarizing projections for the economic projection (SEP) where the federal funds rate is projected to settle over the long term. In time,” Powell said.

The Fed’s decision at its September meeting will depend on the totality of incoming data and the evolving approach. At some point, as the monetary policy stance further tightens, it would be appropriate to slow down the pace of growth.

“Restoring price stability may require maintaining a restrictive policy stance for some time. The historical record strongly warns against premature loosening of policy,” the Fed chairman said.

If the public expects inflation to remain low and stable over time, major shocks are unlikely. “Unfortunately, the same is true of expectations for high and volatile inflation,” he said.

“We are taking vigorous and rapid steps to reduce demand so that it is in better alignment with supply and to keep inflation expectations stable. We will continue this until we are confident that the work is done,” Powell assured.

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