Powell vows to prevent inflation from taking hold in the U.S. for the long run

U.S. Federal Reserve Board Chair Jerome Powell testifies before a House Financial Services Committee hearing in Washington, U.S., June 23, 2022. 

Powell said the Fed wouldn't allow inflation to take hold of the economy.

There is a risk that you will transition to a higher inflation regime. The central bank leader said that they would prevent that from happening. A transition from a low-inflation environment to a high-inflation environment will not be allowed.

Speaking to a European Central Bank forum along with three of his global counterparts, Powell continued his tough talk on inflation in the U.S. that is currently running at its highest level in more than four decades.

Multiple rate hikes have been instituted by the Fed to try to slow the price increases. Powell said it was important to arrest inflation expectations so they don't become entrenched and create a self-fulfilling cycle.

He said that there was a clock where inflation was running for more than one year. It would be bad risk management to assume that long-term inflation expectations will stay anchored in the face of persistently high inflation. We aren't doing that

Market indicators of inflation expectations have fallen since the Fed raised rates. A measure of the outlook over the next five years that compares inflation-indexed government bonds to standard Treasurys fell this week.

Consumers expect prices to continue to go up. The University of Michigan put pressure on the Fed to raise its benchmark interest rate by 0.75 percentage point.

The Fed is supposed to bring down expectations while not causing the economy to crash. Powell said he is confident that will happen.

We will use our tools to bring inflation down. Slowing down growth is the way to go. There is a risk that goes too far. There is a chance. I don't think it's the biggest risk to the economy Failing to restore price stability is the biggest mistake you can make.