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Powell sees pain ahead as Fed sticks to the fast lane to beat inflation
Powell said the Fed will raise rates as high as needed to restrict growth, and would keep them there "for some time" to bring down inflation that is running at more than three times the Fed's 2 percent goal.
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US Federal Reserve chairman Jerome Powell testifies before a Senate Banking, Housing and Urban Affairs Committee hearing on Capitol Hill in Washington, DC, on July 15, 2021. (AFP/Nicholas Kamm)
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mericans are headed for a painful period of slow economic growth and possibly rising joblessness as the Federal Reserve raises interest rates to fight high inflation, US central bank chief Jerome Powell warned on Friday in his bluntest language yet about what is in store for the world's biggest economy.
In a speech kicking off the Jackson Hole central banking conference in Wyoming, Powell said the Fed will raise rates as high as needed to restrict growth, and would keep them there "for some time" to bring down inflation that is running at more than three times the Fed's 2 percent goal.
"Reducing inflation is likely to require a sustained period of below-trend growth," Powell said. "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. These are the unfortunate costs of reducing inflation. But a failure to restore price stability would mean far greater pain."
As that pain increases, Powell said, people should not expect the Fed to dial back its monetary policy quickly until the inflation problem is fixed.
"I thought the message was strong and right," Cleveland Fed President Loretta Mester said in an interview with Bloomberg TV after the speech. "I think we're going to have to move [short-term interest rates] up ... above 4 percent and probably need to hold them there next year."
Indeed, Powell's remarks summed up the momentous challenge facing not just Fed policymakers but also most of the other dozens of central bankers from abroad at Jackson Hole who are frantically trying to contain the worst outbreak of inflation in four decades or more.
Some investors anticipate the Fed will flinch if unemployment rises too fast, with some even penciling in interest rate cuts next year.
