Powell: Rate hikes needed now to avert greater economic pain down the road
Washington, Aug 26 (EFE).- Despite the hardships associated with steady interest rate hikes, the longer-term economic pain for businesses and households will be even greater if inflation is not tamed now, the chairman of the United States Federal Reserve said Friday.
“The historical record cautions strongly against prematurely loosening policy,” Jerome Powell said at the inauguration of an economic policy symposium in Jackson Hole, Wyoming.
In a brief speech, the central bank chief said restoring price stability will likely require maintaining a restrictive policy stance “for some time.”
“At some point, as the stance of monetary policy tightens further, it likely will become appropriate to slow the pace of increases,” he added.
The Fed’s monetary policy-making body voted in July to raise its federal-funds rate by three-fourths of a percentage point (to a target range of between 2.25 percent and 2.5 percent, the fourth-consecutive hike of that benchmark rate and second straight 75-basis-point increase.
Powell recalled that he said after that meeting that “another unusually large increase” may be appropriate when it meets again in September.
On Friday, he said that decision next month “will depend on the totality of the incoming data and the evolving outlook.”
The Fed has been much more aggressive in trying to get inflation in check than other central banks.
The European Central Bank, for example, has thus far only approved one half-point interest rate hike, moving in July to raise its benchmark deposit rate to zero percent. That increase was the first in more than 11 years.
In his remarks, Powell acknowledged the hardships associated with the Fed’s current policy.
“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,” he said. “These are the unfortunate costs of reducing inflation. But a failure to restore price stability would mean far greater pain.”
“We must keep at it until the job is done,” the Fed chairman added.
In his speech, Powell said the US economy is “clearly slowing” from last year’s historically high level of growth, which “reflected the reopening of the economy following the pandemic recession.”
Even so, he said in his view the economy “continues to show strong underlying momentum.”
The labor market is “particularly strong, but it is clearly out of balance, with demand for workers substantially exceeding the supply of available workers.”
He acknowledged the “employment costs” involved in bringing down inflation, which eased slightly to 8.5 percent in July. But he said those costs “are likely to increase with delay, as high inflation becomes more entrenched in wage and price setting.”
In that regard, Powell said the goal of the Fed’s current aggressive monetary police stance is to restore price stability relatively quickly.
He compared the current situation with the early 1980s, when the success of then-Fed Chairman Paul Volcker in bringing down high consumer prices “followed multiple failed attempts to lower inflation over the previous 15 years.”
“A lengthy period of very restrictive monetary policy was ultimately needed to stem the high inflation and start the process of getting inflation down to the low and stable levels that were the norm until the spring of last year,” Powell said. “Our aim is to avoid that outcome by acting with resolve now.” EFE