US Federal Reserve Chairman Jerome Powell delivered a tough message on Friday. The Fed is likely to impose even more significant rate hikes in the coming months, with a resolute focus on keeping inflation at a 40-year high.
Powell also made it clearer than ever that continued credit tightening by the Fed would hurt many households and businesses as higher interest rates could further slow the economy and lead to job losses. I warned you.
In a speech at the Fed’s annual economic symposium in Jackson Hole, Wyoming, he said: “These are the unfortunate costs of keeping inflation under control. But failure to restore price stability would mean far greater pain. ‘ said.
Investors had been hoping for a signal that the Fed could ease rate hikes later this year if inflation showed signs of easing further. But the Fed chairman has indicated that that time may not be near.
Fed may slow pace of rate hikes ‘at some point’
After raising key short-term rates by three-quarters of a percentage point at each of its last two meetings (part of the Fed’s fastest string of hikes since the early 1980s), Powell said the Fed “at some point We may slow down,” he said. — suggesting that such a slowdown is not even close.
Powell said the size of the Fed’s rate hike at its next meeting in late September (whether half a percentage point or three-quarters of a percentage point) would depend on inflation and employment data. However, a hike of either magnitude would exceed the Fed’s previous 1/4-point rate hike, reflecting just how severe inflation has become.
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The decline in inflation reported in July was “welcome”, but the Fed chairman said that “a month’s improvement should be seen by the committee before it is convinced inflation is declining”. It’s far from what we need,” he said.
Powell said the Fed’s history of high inflation in the 1970s, when central banks tried only to raise interest rates intermittently to combat inflation, showed that the Fed had to remain focused.
“The historical record strongly warns against premature rate cuts,” he said. “We have to keep doing it until the job is done.”
Powell’s speech is the marquee event for the Fed’s annual economic symposium in Jackson Hole, the first in-person meeting of central bankers since 2019, and during the COVID-19 pandemic. Because it was virtualized for two years.
Since March, the Fed has hiked interest rates at its fastest pace in decades to keep inflation in check, and soaring costs of food, gas, rent and other essentials are hurting household budgets. , raised the benchmark interest rate by 2% in just four meetings, to a range of 2.25% to 2.5%.
These hikes have increased the cost of mortgages, auto loans and other consumer and business borrowings. Home sales have plummeted since the Fed first signaled it would raise borrowing costs.
slow the economy without causing a recession
In June, Fed policymakers indicated that they expected the key rate to end 2022 in a range of 3.25% to 3.5%, with a further increase next year to 3.75% to 4%. If interest rates hit projected levels at the end of the year, they would be at their highest since 2008.
Powell believes it can produce a risky outcome that slows the economy enough to ease inflationary pressures but not enough to trigger a recession.
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The Fed chairman’s mandate is complicated by the uncertainty in the US economy. On Thursday, the US government announced that the economy contracted at an annual rate of 0.6% in his April-June period. This is his second straight quarter of contraction. Yet employers are still hiring rapidly, and the number of people seeking unemployment assistance, a measure of layoffs, remains relatively low.
At the same time, inflation remains very high, although there are signs of easing, particularly in the form of lower gasoline prices.
At the July meeting, Fed policymakers expressed two competing concerns, highlighting their delicate task.
Officials, who were not named, prioritized fighting inflation, according to the minutes of that meeting. Still, some officials said the Fed risked raising borrowing costs more than necessary, sending the economy into recession. Reconciling these disagreements could become difficult if inflation approaches the Fed’s 2% target and the economy weakens further.
At last year’s Jackson Hole Symposium, Powell gave five reasons why he thinks inflation is “temporary.” But it has persisted instead, with many economists pointing out that these statements are not old enough.
Powell indirectly acknowledged that history in opening remarks on Friday, saying: “Past Jackson Hole meetings have discussed a wide range of topics, including the ever-changing structure of the economy and the challenges of implementing monetary policy. ‘ said.
“Today my statements are shorter, my focus is narrower, and my messages are more direct.”
Powell says Fed will continue to raise rates “for some time”
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