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Federal Reserve Chairman Jerome Powell pledged that he and his colleagues will keep raising interest rates until they’re confident that inflation is under control.
In short and direct remarks Friday at an economic conference in Jackson Hole, Wyo., Powell acknowledged that higher borrowing costs will likely cause some short-term pain for families and businesses.
Unemployment may be higher and the economy may grow more slowly. But Powell warned the alternative — allowing high inflation to continue unchecked — would be worse.
“Without price stability, the economy does not work for anyone,” he said.
After keeping interest rates near zero through much of the pandemic, the Federal Reserve has raised rates by 2.25 percentage points since March. Additional rate hikes are expected, including at the next Fed meeting in September.
“We are taking forceful and rapid steps to moderate demand so that it comes into better alignment with supply, and to keep inflation expectations anchored,” Powell said. “We will keep at it until we are confident the job is done.”
The prospect of sustained higher interest rates triggered a sharp selloff in the stock market. The Dow Jones Industrial Average tumbled more than 1000 points or 3% on Friday, following Powell’s remarks. The S&P 500 index fell nearly 3.4%.
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Inflation may be easing but Powell is not yet assured
Earlier Friday, the Commerce Department offered a signal that inflation may be easing.
The department’s index of personal consumption prices — which is closely watched by the Fed — fell 0.1% between June and July, largely as a result of falling gasoline prices.
Excluding food and energy costs, so-called “core” inflation was 4.6% for the 12 months ending in July — the smallest increase in nine months.
“While the lower inflation readings for July are welcome, a single month’s improvement falls far short of what [Fed policymakers] will need to see before we are confident that inflation is moving down,” Powell said.
The annual gathering of central bankers and other economic bigwigs in Jackson Hole dates to 1982, when then-Fed Chairman Paul Volcker was invited to speak at a conference run by the Federal Reserve Bank of Kansas City.
Organizers knew Volcker was an avid fly-fisherman, so they chose a prime fishing spot at the foot of the Teton mountain range.
Powell noted in his remarks that when Volcker took control at the Fed, the U.S. had already endured more than a decade of failed, often halting efforts to control inflation.
By that time, Americans had grown so accustomed to soaring prices, it took a lengthy period of high interest rates — and a severe recession — for Volcker to turn things around.
“History shows that the employment costs of bringing down inflation are likely to increase with delay,” Powell said. “Our aim is to avoid that outcome by acting with resolve now.”