Fed Chair Jerome Powell Says US Households would Experience ‘Some Pain’ during Inflation Soothing

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Federal Reserve Chairman Jerome Powell warned that the central bank’s goal of easing inflation would cause “some pain” to US households.

Speaking at the Fed’s annual Jackson Hole economic symposium on Friday, Powell explained that the path to lower inflation would be neither quick nor easy.

He further said the task “required using our tools forcefully to bring demand and supply into better balance.” 

According to him, the process would perhaps lead to a certain weakening of the American economy and the labor market.

“While higher interest rates, slower growth, and softer labor market conditions will bring down inflation, they will also bring some pain to households and businesses,” stated Powell. 

“I would interpret that as a willingness to see the unemployment rate creep a little higher here to get to that end of reducing demand,” senior investment strategist at US Bank Wealth Management, Rob Haworth, said. 

A weaker labor market in general leads to tighter consumer demand as households save money in anticipation of possible layoffs.

In addition“Our responsibility to deliver price stability is unconditional,” he stated. 

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What Others Think on the Powell Speech

Although Powell did not indicate whether the Fed’s mega rate increases of 75 basis points would repeat at its rate-setting meeting the following month, he said that the central bank was firm in imposing more restrictive policy to repress inflation. 

“It definitely increases the possibility of 75 [points],” said the Founder and CEO of Infrastructure Capital Management, Jay Hatfield. “He clearly implied it.” 

As opposed to Powell’s caution, the Fed’s assessment of inflation implied that price hikes stagnated in July. The Personal Consumption Expenditures price index jumped 6.3% early Friday from a year ago, under the 6.8% year-over-year hike recorded in June. 

“Powell and the Fed felt they needed to be hawkish,” Hatfield stated. “Even if they are secretly encouraged about inflation, they’re definitely not going to say it.” 

Wall Street had negative feedback on the speech’s tone, with big indices falling on the likelihood of a sustained period of soaring interest rates and the economic pain along with it. 

“These are the unfortunate costs of reducing inflation. But a failure to restore price stability would mean far greater pain,” he stated, referencing the lessons officials learned from studying the Fed’s challenges to counter high inflation in the 1970s and 1980s. , Powell wired a bigger sense of urgency about alleviating inflation than he had in preceding remarks, referring to price stability as “the bedrock of our economy.” 

Read also: Stocks Plunge on Concerns Over Another Mega Fed Rate Increase