Inflation in the United States is still too high. That is why the US central bank, the Federal Reserve, is prepared to raise interest rates even further. And in any case, interest rates will not fall for a long time.
This message was delivered by Jerome Powell, the chairman of the Fed, on Friday in a speech at the annual central bank conference in Jackson Hole, US.
Powell was more adamant than widely expected about the need to continue fighting inflation. “While inflation has passed its peak – a welcome development – it remains too high,” said the Fed chief in Jackson Hole.
The peak in currency depreciation in the US was 9 percent in July 2022. Last month it was 3.2 percent. The decline is likely partly due to the Fed’s interest rate hikes, which began in March last year. Interest rates rose step by step from just above zero to between 5.25 and 5.5 percent. Interest rate hikes make borrowing money less attractive. This slows down the economy, which also dampens price increases.
Core inflation
Powell is particularly concerned about “core inflation,” which has filtered out volatile energy and food prices. This is regarded by central bankers as a good indicator of the underlying price pressure in the economy. Core inflation in the US has only been falling since June. Powell said that “two months of good data” is not enough to trust that inflation is “sustainably moving towards our target.” The Fed, like other central banks, aims for 2 percent inflation.
Powell’s speech increases the pressure on his colleague Christine Lagarde, the president of the European Central Bank, to also explicitly keep open the option of further rate hikes. Lagarde is speaking tonight at the same conference. Inflation in the eurozone is 5.3 percent, core inflation at 5.5 percent. The ECB raised interest rates incrementally from minus 0.5 percent to the current level of 4.25 percentage points from July last year.
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