The president of the Federal Reserve opens the door to a new interest rate hike of 0.75 points in September
The head of US monetary policy defends the strategy to lower prices and slow down the economy with rate hikes
Brief, concise and forceful. Jerome Powell, the chairman of the United States Federal Reservehas chosen a unusual extremely direct route to announce in his long-awaited speech at the meeting of central bankers in Jackson Hole (Wyoming) the firm commitment to the fight against inflation of the Fed, a strategy that has recognized and warned that is going to cause “some pain & rdquor; in homes and businesses and will have a negative impact on the labor market, slowing down current conditions. “Are the unfortunate costs of reduce inflation & rdquor ;, he has said, “but a failure to restore price stability would cause much more pain & rdquor ;.
A year after delivering a speech at the same conclave in which he wrongly downplayed inflation as “transient”Powell is in a position radically different. With year-on-year inflation in the US at 8.5% and the underlying at 5.9%and although the fears of a recession have eased somewhat, there are concerns about the Fed’s ability to cope. But Powell has been confident in his strategy of slow down the economy to contain price increases, and also determined to keep it “for a while & rdquor; if required.
Although he has not guaranteed it, he has opened the door to a new rise in interest rates “unusually large & rdquor; at the next Fed meeting in September, suggesting a third consecutive three-quarter point rally could be repeated. And the president of the Fed has also assured that the current rate levelwhich are between 2.25 and 2.5%, “it is not a place to stop or pause”.
“Although the lower inflation figure for July is welcome, a single month’s improvement is a long way from what the committee will need to see before they are confident that inflation is coming down,” he said.
The “soft landing & rdquor;
rebroadcast streaming for the first time, Powell’s speech opening the three-day meeting has given the clearest signal yet of the firmness of the direction taken. The landing expected may not be smooth as initially intended, but rather rough and tough. And the forceful words of the chairman of the Fed have been received with initial declines in stock markets.
Powell has also given a reading of his strategy in a historic context, assuring that “the lessons of the past strongly warn against relaxing the policy prematurely & rdquor;. And he has made several quotes to one of his predecessors, his admired Paul Volker, to remember that the success of the one against inflation in the early 1980s only came after “multiple failed attempts to reduce it in the previous 15 years & rdquor ;.
Related news
In the same perspective of historical lessons, Powell has recalled the impact that public expectations about inflation have about that precise phenomenon, which, as Volcker also said, “feeds in part on itself”. The more inflation rises, he has explained, the more entrenching themselves in the economic decisions made by households and businesses and influences spending decisions and the setting of wages and prices. With “practically everyone & rdquor; paying attention to inflation today, has pointed to “a particular risk” at this time: “the longer the current episode of high inflation lasts, the more options there are for high inflation expectations to take hold.”
Powell has given Volcker one more nod, using the title of the autobiography he wrote recounting his anti-inflation campaign to close his speech. “We are giving brisk and quick steps to moderate demand so that it is better aligned with supply and to keep inflation expectations stabilized & rdquor ;, he said. “We will continue until we are confident that we have reached the goal & rdquor ;.