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Fed Chair Jerome Powell Cautions Combating Inflation will Result in ‘Some Pain’

Photo: Media Chat

Federal Reserve chairman Jerome Powell cautioned that the central bank’s goal to alleviate inflation would bring in “some pain” for American households. 

In a Friday speech at the Fed’s yearly Jackson Hole Economic Symposium, Powell stated that the journey to decreasing inflation would not be fast or simple. 

He further said the task “required using our tools forcefully to bring demand and supply into better balance.” 

In the process, according to him, it would possibly bring in a few weakening of the US economy and job market. 

“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,” stated Powell. 

“I would interpret that as a willingness to see the unemployment rate creep a little higher here to get to that end of reducing demand,” senior investment strategist at US Bank Wealth Management, Rob Haworth, said. 

A weaker labor market at large tightens consumer demand because households save cash in expectation of possible job redundancy. 

Additionally, Powell wired a bigger sense of urgency about alleviating inflation than he had in preceding remarks, referring to price stability as “the bedrock of our economy.” 

“Our responsibility to deliver price stability is unconditional,” he stated. 

Read also: Stocks Tumble with Growing Concerns on Huge Fed Rate Hike

Expert Opinion on Powell Speech

Although Powell did not indicate whether the Fed’s mega rate increases of 75 basis points would repeat at its rate-setting meeting the following month, he said that the central bank was firm in imposing more restrictive policy to repress inflation. 

“It definitely increases the possibility of 75 [points],” said the Founder and CEO of Infrastructure Capital Management, Jay Hatfield. “He clearly implied it.” 

As opposed to Powell’s caution, the Fed’s assessment of inflation implied that price hikes stagnated in July. The Personal Consumption Expenditures price index jumped 6.3% early Friday from a year ago, under the 6.8% year-over-year hike recorded in June. 

“Powell and the Fed felt they needed to be hawkish,” Hatfield stated. “Even if they are secretly encouraged about inflation, they’re definitely not going to say it.” 

Wall Street had negative feedback on the speech’s tone, with big indices falling on the likelihood of a sustained period of soaring interest rates and the economic pain along with it. 

“These are the unfortunate costs of reducing inflation. But a failure to restore price stability would mean far greater pain,” he stated, referencing the lessons officials learned from studying the Fed’s challenges to counter high inflation in the 1970s and 1980s.

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