Federal Reserve Chair Jerome Powell Strongly Commits to Fight Inflation
The Federal Reserve hiked interest rates by 0.75 percentage points, the fifth boost this year in the central bank’s effort to contain inflation. In a speech, Federal Reserve Chair Jerome Powell underlined the need of bringing inflation down now, before the public becomes accustomed to higher prices and begins to accept them as usual. Unfortunately, no other feasible solutions exist.
The Relation Of Inflation And Public Expectations
Powell stated in his most recent remarks, reinforcing his commitment to the fight against inflation, that expectations play a key role and were a major reason why inflation was so persistent in the 1970s and 1980s. “History warns strongly against prematurely relaxing policy.” The central bank chief said in a Q&A session, at a Washington-based libertarian think tank. “I can guarantee you that my team and I fully devoted to this project and will work tirelessly until it is completed.”
The Federal Reserve Chair Jerome Has Hiked Benchmark Interest Rates Four Times This Year
Markets mostly ignored the comments, with major averages barely changing in the early going on Wall Street. Treasury rates were largely higher, with the two-year note jumping by roughly five basis points to 3.49%, the most vulnerable to Fed rate hikes. The Federal Reserve has hiked benchmark interest rates four times this year, with the fed funds rate now fixed at 2.25%-2.50%.
One rationale for acting forcefully, according to Powell, is to prevent inflation, which is at its highest in more than 40 years, from being ingrained in public awareness. He said,
“The Fed is responsible for price stability, which we define as 2% inflation over time,” he explained.” The longer inflation remains much above target. The more likely it is that the public will accept higher inflation as normal, thereby raising the consequences of deflation.”
Recently, there have been some indications that the monthly direction of inflation is slowing. Gasoline costs, in particular, have been progressively declining after momentarily exceeding $5 per gallon.
Powell Emphasized The Job Market’s Strength.
Powell highlighted the labor market’s stability, with robust hiring continuing despite rate hikes. Even as Fed policymakers expect the official unemployment rate to climb. He cautioned last month that tighter policy will cause the economy “some pain.” But that slowing growth is vital to keep inflation under control.
“What we intend to achieve is a period of economic growth below trend, which will aid in labor market stabilization. Bringing wages back down to levels more compatible with 2% inflation over time,” says the Fed.