Breaking News! Powell spoke on monetary policy and price stability at the Jackson Hole Economic Policy Symposium hosted by the Kansas City Fed.
Speaking at this year’s symposium, the theme of which is “Reassessing Economic and Political Constraints,” Powell said the Federal Open Market Committee’s (FOMC) focus is to bring inflation back to its 2 percent target.
Stressing that the Fed is responsible for price stability, Powell said it is the bedrock of the economy, adding, “Without price stability, the economy is useless to anyone.”
“IT WILL TAKE TIME TO RESTORE PRICE STABILITY”
Powell explained that the sustainability of strong labor market conditions without price stability benefits everyone, Powell said:
“Restoring price stability will take time and will require vigorous use of our tools to better balance demand and supply. Reducing inflation will likely require a period of below-trend growth. There will also likely be some moderation in labor market conditions .
Higher interest rates, slower growth and weaker labor market conditions will lower inflation while inflicting some pain on households and businesses. This is the unfortunate cost of reducing inflation. But restoring price stability would mean much greater pain.”
Noting that the US economy is slowing, Powell said the economy continues to show strong momentum despite the mixed signals from recent economic data.
“A MONTH OF IMPROVEMENT lags far behind what the committee needs to see”
Powell noted that the labor market was strong and imbalanced and that the demand for labor significantly exceeded the current labor supply.
Noting that inflation is well above 2 percent, Powell said high inflation continues to permeate the economy.
“While lower inflation readings for July are welcome, a single month’s improvement falls far short of what the committee needs to see before it can be confident that inflation has come down,” said Fed Chair Powell. said.
“OUR DECISION AT THE SEPTEMBER MEETING WILL BECOME DEPENDENT ON THE INCOMING DATA AND THE IMPROVING OUTLOOK”
Powell explained that they deliberately shifted their monetary policy stance to levels that would be restrictive enough to bring inflation down to 2 percent, recalling that the rate hike at the July meeting was the second 75 basis point hike, then an unusually large raise might be more appropriate at the next meeting.
“Our decision at the September meeting will depend on the aggregate of data coming in and the evolving outlook,” Powell said. He reiterated that at some point it would be appropriate to slow the pace of hikes as monetary policy tightened further.
Powell stated that restoring price stability will likely require maintaining a tight monetary policy stance for a while, saying the historical record is a strong warning against premature policy easing.
“WE WILL CONTINUE UNTIL WE ARE SURE THE WORK IS COMPLETE”
Powell said the latest estimates from Fed officials show that the median federal funds rate will be just under 4 percent by the end of 2023 and that the estimates will be updated in September.
Powell explained that monetary policy talks and decisions are based on what he has learned from both the period of high and volatile inflation in the 1970s and 1980s and the period of low and stable inflation over the past quarter century, noting that the lessons they are leading the way from these times while using the bank’s tools to reduce inflation.
“We are taking strong and rapid steps to dampen demand to allow demand to better match supply and inflation expectations to stabilise. We’ll keep going until we’re confident the job is done,” Powell said. said.
#Feds #Powell #Fighting #inflation #hurt
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