Federal Reserve pledges to continue cutting inflation, ‘until we are confident the job is done’

Saturday, August 27, 2022 – 09:51 UTC

“…a single month’s improvement is well below what the Committee will need to see before we are confident that inflation is easing,” Powell insisted.

Federal Reserve Chairman Jerome Powell said on Friday that the job of reducing inflation was not done and “we will continue until we are satisfied that the job is done.” Powell was speaking at the Fed’s annual conference in Jackson Hole, Wyoming, an event watched closely by markets and pundits, trying to price future action.

Friday’s inflation data showed prices in the United States rose 6.3% in the past twelve months to July, down from 6.8% in June. Excluding food and energy, the personal consumption expenditure index rose 4.6% from July 2021, still above the Fed’s 2% target.

“While the weaker inflation readings for July are welcome, the single-month improvement is well below what the Committee will need to see before we are confident inflation is coming down,” Powell insisted. .

The Fed has made four consecutive interest rate hikes in the past six months, moving in June and July to raise rates by 0.75%, the biggest moves since 1994.

By raising borrowing costs, the Fed hopes to dampen demand and contain inflation by making it more expensive to buy a home, business loans and other types of credit.

Short-term interest rates are now in a target range of between 2.25% and 2.5%, which some Fed policymakers consider the so-called “neutral rate,” or level rates. that do not stimulate or restrict economic activity.

Powell said more rate hikes will be needed, with “another unusually large hike” still on the table for the Fed’s next meeting in September. The Fed Chairman reiterated that “at some point” the Fed will slow the pace of its price increases.

“In the current circumstances, with inflation well above 2% and an extremely tight labor market, longer-term neutrality estimates are no place to stop or pause,” Powell said Friday.

With U.S. unemployment at a historic low of 3.5% in July, Powell said the labor market remained strong but suggested the Fed’s rate hike campaign could restrict economic activity and lead to a softer labor market. The Fed’s next policy-setting meeting is scheduled for September 20-21.

Combined with the costly credit crunch, Powell warned that households and businesses could feel some pain as interest rates rise.

Similarly, markets reacted negatively to Powell’s tough stance on fighting inflation: the Dow Jones Industrial Average fell 1,008.38 points, or 3.03%, to 32,283.40, losses accelerating towards the fence. The S&P 500 fell 3.37% to 4,057.66 and the Nasdaq Composite slipped 3.94% to 12,141.71.


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