In the US, the Fed promises to fight inflation even if it means slowing down the economy

Mr. Powell went straight to the point. At the opening of the Jackson Hole symposium, the annual meeting of the world’s central bankers in Wyoming (western United States) on Friday, 26 August, the chairman of the Federal Reserve uncharacteristically limited himself to a short ten-minute statement. His message was very clear – he will do everything possible to bring inflation back to its 2% target. “We will keep at it until we are confident the job is done,” he said.

He repeated that this is currently the central bank’s “top priority.” “Price stability is the Federal Reserve’s responsibility and serves as the foundation of the economy. Without price stability, it doesn’t work for anyone (…) Restoring it will take time and requires using our tools vigorously.” Since March, the Fed has already raised its interest rate from a range of 0% to 0.25% to a range of 2.25% to 2.5%. At its last two meetings, in particular, it acted decisively, raising the rate by 0.75 percentage points each time.

Read more Subscribers only Central bankers gather to address worsening economy

However, at his last press conference on July 27, Mr. Powell made comments suggesting that he would slow the pace. Shortly afterwards, the statistics finally brought some good news, as inflation in the US fell slightly from 9.1% in June to 8.5% in July (year-on-year). The US benefited in particular from the fall in the cost of oil, which is still high but has fallen in recent months to $92 (€92.10). Also, the world’s largest economy is not dependent on Russian supplies and is suffering far less than Europe from the surge in gas prices.

Uncompromising rhetoric

These signals were taken by the financial markets as the possibility of a turning point. After a 24% decline from January to mid-June, the S&P 500, one of the major US stock market indices, rebounded by 11%. Mr. Powell was keen not to give the wrong impression, noting there is no question of taking a step back for the time being. And it doesn’t matter if higher interest rates cause the economy to slow down.

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“Reducing inflation probably implies a sustained period of growth below the long-term trend. Higher interest rates, weaker growth and tougher labor market conditions will likely reduce inflation, but they will also be painful for households and businesses,” the Fed president said, saying he is comfortable with the choice – “a failure to restore price stability would mean far greater pain.”

While the European Central Bank started its rate hike later than the Fed, it raised rates in July by half a point to 0% – a first since 2011

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