Powell said that he expects the central bank to raise interest rates in a way that will cause some pain to the economy.
Powell said that the Fed will use its tools forcefully to attack inflation that is still running near its highest level in more than four decades.
Even with a series of four consecutive interest rate increases totaling 2.25 percentage points, Powell said this is "no place to stop or pause"
He said that higher interest rates, slower growth, and softer labor market conditions would bring some pain to households and businesses. The costs of decreasing inflation are unfortunate. It would be worse if price stability was not restored.
The stock market lost steam as Powell began his speech. The market was off a bit, but later regained it's lost ground. The yield on the Treasury was off their highs.
There are signs that inflation may have peaked, but there are no signs of decline.
The consumer price index and personal consumption expenditures price index showed little change in July due to a steep decline in energy costs.
Other areas of the economy are not growing as fast as they used to. The huge surge in hiring over the past year and a half is expected to cool, as the housing market is falling off rapidly.
Powell said that the focus of the Fed is more than a month or two of data, and that it will push ahead until inflation moves closer to its goal.
He said that the policy stance was being moved to return inflation to 2%. Restoring price stability will likely require maintaining a restrictive policy stance for a while. There is a historical record that cautions against premature easing of policies.
The economy came off consecutive quarters of negative GDP growth. Powell and most other economists think the economy is strong if it slows.
It was a short speech.
Powell used the Jackson Hole symposium as an opportunity to outline broad policy shifts, but his remarks Friday were just six pages long.
He said that his marks would be shorter, his focus would be narrower, and his message would be more direct in his introduction.
He said that price stability is the responsibility of the Federal Reserve. The economy does not work for everyone.
Markets are waiting to see if the Fed will raise rates for the third time in a row in September. The decision will be dependent on the incoming data and the evolving outlook. As the stance of monetary policy gets tighter, it will be appropriate to slow the pace of increases.
The price of a close call is between a half-point and three-quarter-point increase. According to the FedWatch measure, there was a 50% chance of a half-point move.
A lesson from the past is being used by the Fed.
The current Fed has three lessons from the inflation of 40 years ago, according to Powell: that the Fed is responsible for managing inflation, that expectations are critical, and that we must keep at it until the job is done.
The Fed's failure to act forcefully in the 1970s led to a perpetuation of high inflation expectations that led to the rate hikes of the early 1980s. Paul Volcker was the chairman of the Fed when he pulled the economy into a recession.
Powell said that managing expectations is important if the Fed is going to avoid a Volcker-esque outcome.
Powell said that a lengthy period of very restrictive monetary policy was needed to stem the high inflation and start the process of getting inflation down to the low and stable levels that were the norm until the spring of last year. We want to avoid that outcome by acting with resolve now.
The idea ofrational inattention is one concept Powell has in mind. People pay less attention to inflation when it's low and more when it's high.
The risk of expectations of higher inflation becoming entrenched is highlighted by the fact that inflation has just about everyones attention right now.
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