The chair of the Federal Reserve warned that the central bank's campaign to wrestle lower the fastest inflation in decades will hurt workers and overall growth. He said that the Fed needs to keep raising interest rates to prevent price increases from becoming a permanent feature of the economy.
Mr. Powell said in a speech on Friday that it would take some time to restore price stability. Higher interest rates, slower growth and softer labor market conditions will cause some pain to households and businesses.
The unfortunate costs of reducing inflation are what he said.
At the Federal Reserve Bank of Kansas City's annual conference, Mr. Powell used his most closely watched speech of the year to emphasize both the Fed's dedication to bringing inflation back under control and to emphasize that its policy moves so far are.
The Fed chair said that the central bank would not deviate from its plan to slow the economy. Mr. Powell said that a bumpy landing would be a price worth paying to return price stability to the United States.
The Fed lifted interest rates from near-zero in March to a range of 2.25 to 2.5 percent, and investors are waiting for any indication of how fast and far the Fed will raise rates in coming months. Higher interest rates make it more expensive to build a house or expand a business, slowing economic activity and cooling the job market, which can help to reduce demand enough that supply catches up and price increases slow down.
How much is inflation? Your dollar won't go as far tomorrow as it did today due to inflation. The change in prices for everyday goods and services is known as the annual change in prices.
Is there a cause for inflation? It could be due to increased consumer demand. There are developments that have little to do with economic conditions and can cause inflation to rise and fall.
I wonder if inflation is bad. It is dependent on the situation. Moderate price gains can lead to higher wages.
Inflation can affect the stock market. It's difficult for stocks to be affected by rapid inflation. Houses have held their value better than financial assets during inflation booms.
Fed officials will be watching incoming data as they decide whether to make a third straight "unusually" large three-quarter point rate increase at their Sept. 20-21 meeting, according to Mr. Powell, who did not give a clear signal of what pace lies ahead. He made it clear that central bankers have more work to do to bring inflation down.
At some point, as the stance of monetary policy tightens further, it is likely to become appropriate to slow the pace of increases.
The Fed's mission is on its way to being accomplished, but not enough was said by Mr. Powell about a slowdown in inflation in July.
The Federal Open Market Committee will need to see before they are confident that inflation is moving down.
At the most important economic conference of the year, the Fed chair used his platform to lay out a set of reasons why the central bank must remain dedicated to lowering inflation even if it causes pain in the short term. A message seemingly pointed at the Fed's critics and at the general public as Americans grapple with rapidly rising costs.
The global phenomenon of inflation is caused by constrained supply due to factory closings in Asia. The Fed's tools are a painful way to bring it down according to Senator Elizabeth Warren. Mr. Powell made it clear in his speech that cooling demand is something the Fed can do.
Mr. Powell said that central banks should deliver low and stable inflation. The responsibility of delivering price stability is not negotiable.
The Fed chair said that it was important to stamp out inflation before the public starts to expect it, because such expectations can change behavior and cause rapid price increases.
The risk of expectations of higher inflation becoming entrenched is highlighted by the fact that inflation has just about everyone's attention right now.
It is possible that the cost of inflation will be high. If fast price increases become a permanent feature of the economy, they will be harder to crush, requiring more economic pain in the form of lost jobs and household suffering to choke off demand.
The employment costs of bringing down inflation are likely to increase with delay. We want to avoid that outcome by acting with resolve now.
The signal from Mr. Powell is that he and his colleagues are dedicated to fighting inflation, even if it is painful. The last line of his speech seemed to reference his predecessor, Paul Volcker, who raised rates sharply in the 1980s to choke down inflation.
Mr. Powell said they would keep going until they were sure the job was done.
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