Federal Reserve Chairman Jerome Powell talks during a press conference at the Federal Reserve Building in Washington on Wednesday, July 27, 2022.
On Friday, Federal Reserve Chairman Jerome Powell warned that while battling inflation in the United States would be unpleasant for individuals and businesses, failing to act would be worse for the economy.
The chairman of the Federal Reserve warned the annual Central Bankers Conference in Jackson Hole, Wyoming, that the US central bank will use its instruments forcefully by raising interest rates.
In a short address a month before the midterm elections, Joe Bidens Democratic administration stated that returning to price stability would take time and would result in a lengthy period of bad growth as well as a slowdown in the labour market.
In the United States, according to the Consumer Price Index, inflation reached 8.
5% year on year, up from 9.1% in June, and close to the highest level in forty years.
The Federal Reserve also monitors the personal consumption expenditures price index, which is based on consumer spending and was updated on Friday. This inflation indicator reached 6.3% on an annual basis, up from 6.8% in June.
If these July declines are positive, then the improvement over only one month is insufficient, according to Powell, who added that the pattern has to be confirmed.
The Federal Reserve intends to reduce this amount to roughly 2%. Powell warned that this method would have unfavourable outcomes.
Following two straight 75-point increases (0. 75%), he stated that the Federal Reserve was poised for a particularly large rate rise at the upcoming monetary committee meeting on September 21.
Powell warned markets that interest rates will enter a restricted zone and that the neutral rate threshold, which shows the best level of rates to prevent causing the economy to deteriorate or stabilise, was no longer on the table.
Long-term neutral rate expectations, he emphasised, are not a stopping point.
Powell said that delaying the rate hike will be sensible at some point.
He also emphasised in his blunt comments that history has shown that monetary policy should not be relaxed prematurely.
The address of the President of the United States Central Bank drew a lot of interest at the conference, which was held in Jackson Hole, Wyoming, for the first time since 2019.
Powell remarked that current inflation is a global issue, and that many economies across the world are suffering price increases comparable to or even greater than what the United States is facing.
Since April, the Federal Reserve has raised daily interest rates on all other loans from zero to between 2.25 and 2. 50% in an effort to cool the price bubble. According to the central bank’s most current average forecast, released in June, it is expected to reach at least 3.
8% the next year
Powell made many references in his speech to former Federal Reserve Chairman Paul Volcker, who wielded an iron hand to restrain rising inflation in the early 1980s.
Following Powell’s speech and the announcement of the personal consumption expenditures price index, the dollar lost 0. 73% of its value, reaching 1,0050 dollars per euro around 14:25 GMT.
The US Federal Reserve has stated that combating inflation will be “painful.”
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