‘We need to act now’: Fed Chair Powell vows to continue fierce anti-inflation

“The Fed takes on and accepts responsibility for price stability,” he said at the Cato Institute’s 40th annual monetary conference. “We need to act now – frankly, aggressively.”

As he delivered in his uncharacteristically short speech at the Federal Reserve’s annual Jackson Hole symposium last month, Powell reaffirmed his commitment to a hard-line political stance. The Fed chair is trying to cool expectations among consumers and businesses that prices will continue to rise, which could lead to changes in spending, earnings and investment habits that could be hard to undo.

“The public really started to think of high inflation as the norm” in the 1970s, President Powell said, following what he called “failed attempts” to rein in high prices — a failure he attributed to the Fed’s unwillingness to keep monetary policy tight. Enough long enough.

Federal Reserve Vice Chairman Lyle Brainard echoed Powell’s concern that people might expect inflation normally in a speech at the Banking Policy Conference in New York on Wednesday. “It is particularly important to watch out for the risk that households and businesses begin to expect inflation to remain above 2% over the long term,” she said.

Investors are overwhelmingly anticipating a 75 basis point hike at the Fed’s upcoming policy-setting meeting later this month as they digest Powell’s comments, his last comments before the lull leading up to the meeting. The Minor suggested to market participants that the Fed would not stop raising interest rates even if the Consumer Price Index and the Producer Price Index, two key inflation gauges due next week, came out better than expected.

“Their message is that we should expect them to remain in a restrictive policy setting even after we start seeing inflation data heading in the right direction,” said Keith Buchanan, portfolio manager at Global Investments. “He has gone to great lengths to dispel the assumptions of any axis that is coming up soon.”

The Fed has been heavily criticized for underestimating the breadth and duration of the current inflation wave, and officials want to announce that they have learned their lesson, said Brad Conger, deputy chief investment officer at Hertle Callahan. “They take pains to say we won’t get caught up in an ephemeral trend,” he said.

While Powell wants to convey that the central bank will not repeat its past mistakes in exiting the pandemic, analysts say it will face a more difficult task staying committed to higher rates once it becomes clear that inflation is improving.

“It suffices for them to admit that the near-term interest rate is heading in the right direction, but certainly, they should not allow it [influence] Their course, and the real dilemma is, how much good data do they need on hand before they pause?

The challenge will become more acute if the unemployment rate, which is currently near its lowest level in 50 years, rises appreciably – an outcome another Federal Reserve official acknowledged this week as likely. On Wednesday, Cleveland Federal Reserve Bank President Loretta Meester called inflation a major economic challenge in a webcast for Market News International.

“Given current inflation rates, I think the Fed has more work to do to control inflation. This will necessitate further rate increases to tighten financial conditions,” she said.

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It’s an open question how far the Fed will be willing to take on more unemployment. “He’s very careful not to pinpoint the level that will lead them to change course,” Buchanan said of Powell. “I think it depends on a number of factors [and] There is a delicate balance to strike.”

In his comments Thursday, Powell did not indicate how long the Fed expected to keep its current policy trajectory, but some suspect that it may take some time, even if officials are willing to accept a higher baseline — say 3% — rather. of the stated inflation target of 2%.

“You’re looking at another year of the Fed continuing to raise rates or keep them the same,” said Robert Cantwell, portfolio manager at Upholdings.

In the meantime, he added, the streams of economic data that have spoiled market expectations and policy makers alike in recent months are likely to remain pillars of the economic landscape. “We are entering a stage here where growth can remain good while unemployment is high [and] While inflation is going down – which is extremely rare.”

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