Jackson Hole: The US economy Tight monetary policy will be needed “for some time” before inflation is under control, a fact that means slower growth, a weaker job market and “some pain” for homes and businesses, says Federal Reserve Chair Jerome Powell Commenting on Friday, he said that there is no quick cure for rapidly rising prices.
“Continuous periods of downward trend growth may be required to moderate inflation. In addition, labor market conditions are likely to soften somewhat. While higher interest rates, slower growth, and soft labor market conditions bring inflation down, they will also bring some pain to homes and businesses, Powell said in remarks prepared for a speech at the Jackson Hole central banking conference in Wyoming.
“These are the unfortunate costs of mitigating inflation. But failure to restore price stability will mean far more pain.”
As that pain becomes greater, Powell said, people should not expect the Fed to dial back that quickly until the inflation problem is fixed. Some investors predict the Fed will flare up if unemployment rises too quickly, with some cutting interest rates next year, an approach US central bank officials have pushed hard in recent weeks.
Conversely, some policymakers have indicated that even a recession won’t deter them if prices aren’t moving back to the Fed’s 2% target. Powell on Friday gave no indication of how higher interest rates might go before the Fed ends, only that they will move higher as needed.
“The historical record strongly warns against premature lax policy,” Powell said. “We must keep this up until the job is done. History shows that the employment cost of driving inflation is likely to increase with a delay.”
Powell did not indicate what the Fed might do at its upcoming September 20-21 policy meeting. Officials are expected to approve either a 50-basis-point or 75-basis-point-rate hike.
Recent data showed a somewhat smaller decline in inflation, with the Fed’s personal consumption spending price index falling to 6.3% year-on-year in July from 6.8% in June.
“A month of correction is too little for the committee to see before we are convinced that inflation is easing,” Powell said, referring to the central bank’s policy-making Federal Open Market Committee.
Other data showed what Powell said was “strong underlying momentum”, with the job market “clearly out of balance” with job openings far outnumbering the unemployed.
With further jobs and inflation reports coming in, Powell said, “the decision to increase rates will depend on the totality of incoming data and the evolving outlook.”
Powell commented in a room of international policymakers and economists gathered at a mountain lodge about how the COVID-19 pandemic posed new constraints on the world economy, and its implications for central banks.
Inflation is now his main concern, and Powell’s remarks at a symposium hosted by the Kansas City Fed set out the prospect of registering in global markets. It was also a message that major central banks are simultaneously campaigning that rate hikes are for slowing economies, and a commitment that will not be discounted until inflation falls.
In a prior appearance at the Jackson Hole conference, Powell’s remarks included high-level discussion of Fed strategy and analysis.
He acknowledged this in his inaugural address. But as the Fed tried to keep markets and the general public informed of what is coming in the future, it said the intensity of the moment required a more grassroots approach.
“Today, my remarks will be shorter, my focus will be narrower, and my message more direct,” Powell said.
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