Powell Predicts Pain Ahead As Fed Committed To Beat Inflation

On Friday, the chief of the US Federal Reserve delivered his speech at the central banking conference in Jackson Hole, Wyoming, which saw him use the bluntest language to shed light on what to expect in the future.

According to Jerome Powell, the world’s biggest economy is headed for a painful period because there could potentially be increasing unemployment and slow economic growth, with interest rates going up.

Fed to raise rates

The chairman of the US Fed said the central bank would continue raising interest rates as high as required in order to restrict growth.

He also added that they would keep the rates high for ‘some time’ in order to curb inflation, which is almost three times higher than the 2% target of the Fed.

Powell asserted that they probably need below-trend growth for a period in order to bring down inflation.

He stated that higher interest rates, a softer labor market, and slower growth would certainly reduce inflation, but they would also translate into pain for businesses and households.

The central bank chief that these were the unfortunate costs associated with taming inflation, but it would bring greater pain if they fail to restore price stability.

He went on to say that once the pain goes up, people should not expect the Fed to dial down until they have managed to resolve the inflation problem.

Massive challenge

The statement from the head of the Federal Reserve sums up the massive challenge that the central bank’s policymakers are facing.

Dozens of other central bankers who were also in attendance at the Jackson Hole conference are also facing a similar challenge.

They are all trying to frantically control the outbreak of inflation that has not been seen in decades in their respective countries.

There are some investors who believe that the US Fed will flinch if there is a sharp rise in unemployment, with some even expecting interest rate reductions coming next year.

Not fearful of recession

However, by all appearance, Powell and other Fed policymakers have given the impression that they are not fearful of pushing the economy into recession, as long as it means controlling inflation.

During his speech on Friday, Powell did not provide any indications on how high they will push up the rates before they are done with it. He just said that they will go as high as required.

He stated that historical records indicate that they should not loosen policy and should keep doing it until they accomplish their goal.

He added that history also shows that delaying the process of bringing employment down would only increase employment costs.

Raphael Bostic, the President of Atlanta Fed, also reiterated the same message of hiking the interest rates and then holding them there for a while.

He said that they should increase the current policy of the central bank by 100 or 125 basis points from its current range of 2.25% and 2.50% and then stay there for a long while.