JACKSON HOLE, Wyoming (AP) — Federal Reserve Chairman Jerome Powell sent a strong message Friday: The Fed may raise more major interest rate hikes in the coming months and focus solely on tackling the highest inflation in four decades. is focusing.
Powell acknowledged that the Fed’s continued tightening would be a pain for many households and businesses as its higher rates further slow the economy and potentially lead to job losses.
“These are the unfortunate costs of reducing inflation,” Powell said in a written version of a high-profile speech he was delivering at the Fed’s annual economic symposium in Jackson Hole. “But a failure to restore price stability will mean far more pain.”
Powell’s message could disappoint investors who were hoping for a sign that the Fed may soon reduce its rate hike later this year if inflation were to show signs of further easing.
After raising his key short-term rate by three-quarters in each of his last two meetings—part of the Fed’s fastest rate hike since the early 1980s—Powell said the Fed would consider that momentum “anything.” to the point”. ”- suggesting that no such slowing is imminent.
The Fed chairman clarified that he expects rates to remain at levels that should slow the economy “for some time”.
Powell’s remarks were to close the Fed’s annual economic symposium in Jackson Hole, the first time since 2019 that the central bankers’ conference will be held in person, after going virtual for two years during the COVID-19 pandemic.
Since March, the Fed has implemented its fastest pace of rate hikes in decades to combat inflation, which has punished households with rising costs of food, gas, rent and other necessities. The central bank has raised its benchmark rate by 2 full percentage points from 2.25% to 2.5% in just four sittings.
Those increases have led to higher costs for mortgages, car loans and other consumer and business lending. Home sales are falling since the Fed first indicated it would raise borrowing costs.
Yet the central bank finds itself at a turning point. In a news conference after its last policy meeting in late July, Powell suggested the Fed decide to slow its rate hikes after making two straight three-quarter-point hikes — historically big moves — in June and July. can take.
He also said the Fed’s aggressive moves have raised its key short-term rate to a point at which it is neither stimulating nor slowing growth. Its benchmark rate was close to zero from the start of the pandemic until this March as the Fed sought to strengthen the economy.
Fed-watchers were hoping Powell would send some hints on Friday about how much the central bank would announce at its next meeting in late September or how long policymakers would keep rates high. They expect to learn more about what factors policymakers will consider in the coming months to determine whether lending rates have become too high.
“They faced uncertainty about the outlook and tried to explain what they would be looking to make in their policy decisions,” said William English, a Yale School of Management professor and former Fed senior economist.
For example, how far should inflation fall before Powell and his colleagues postpone their rate hikes? What will the Fed do if unemployment, now at a half-century low, starts rising? If the economy heads into recession, many investors think the Fed may pivot and actually cut rates again. But if inflation is not under control now, it will be less likely.
In June, policymakers at the Fed indicated they expected their key rate to end in the range of 3.25% to 3.5% by 2022 and then rise further to between 3.75% and 4% the following year. If rates reach their projected levels later this year, they will be at their highest point since 2008. Powell is betting he can create a high-risk outcome: to ease inflationary pressures to slow the economy, yet not so much as to trigger a recession.
His task is complicated by a hazy picture of the economy: On Thursday, the government said the economy shrank at a 0.6% annual rate in the April-June period, the second straight quarter of contraction. Yet employers are still increasingly hiring, and the number of people receiving unemployment assistance, a measure of layoffs, is relatively small.
At the same time, inflation is still very high, although there are signs of some moderation, especially in the form of a fall in gas prices.
“The data is very confusing,” said English. “It’s hard to know what the exact situation is.”