WASHINGTON, United States—Taming US inflation will inflict “pain” on American families and businesses, but failure to wrestle prices down from their current 40-year high would be even more harmful, Federal Reserve Chair Jerome Powell said Friday in a hotly-anticipated speech to global policymakers.
Addressing the annual gathering of central bankers in Jackson Hole, Wyoming, Powell did not hold back or leave room for doubt about the Fed’s plans, pledging to act “forcefully.”
He warned that the world’s largest economy is likely to slow for a sustained period, and the strong US job market will suffer in order to get prices down—consequences he called the “unfortunate costs of reducing inflation.”
The Fed this year launched an aggressive campaign to raise interest rates—and in his unusually short, notably direct remarks, Powell made it clear that the fight against inflation is not over.
“Restoring price stability will take some time and requires using our tools forcefully to bring demand and supply into better balance,” he told the gathering, held against the backdrop of the majestic Grand Teton mountains.
“While higher interest rates, slower growth and softer labor market conditions will bring down inflation, they will also bring some pain to households and businesses,” Powell said.
“But a failure to restore price stability would mean far greater pain.”
Modest signs of slowing in the US economy and easing price pressures spurred hope in financial markets that the central bank might ease up on its aggressive rate hikes, and perhaps even start to reverse course next year.
But Powell doused hopes of a policy pivot, making it clear that Fed policy and the benchmark borrowing rate would have to remain “sufficiently restrictive” to bring inflation back down to the two percent target.
US markets turned negative on the news, with all three major stock indices losing three percent or more, including a 1,000 point loss for the Dow.
The supply chain issues that have beleaguered the global economy have continued, worsened by a series of COVID lockdowns in China, which have combined with Russia’s war in Ukraine to send prices soaring worldwide.
In the battle to contain red-hot US inflation, which topped nine percent in June, the Fed has increased rates four times, including three-quarter-point increases in June and July—steep moves unheard of since the early 1980s—to the current level of a range of 2.25 to 2.5 percent.
Powell repeated Friday that another “unusually large” 75 basis point hike could be appropriate at the September policy meeting.