It will take time to curb the race of inflation. And it won't be painless. This is the gist of what the Fed chairman said, Jerome Powell, during his expected speech at the meeting of Jackson Hole. And as expected, the audience present in Wyoming for the first time after two years of stoppage due to Covid found themselves in front of the "falcon Powell".
The head of the US central bank frankly admitted that the fight against inflation will probably cause “some pain” for the economy but not “restoring price stability would be even more painful”. For this reason, the Federal Reserve's monetary policy will have to be tight “for some time”.
Powell in Jackson Hole: “Restrictive policy for some time”
“The Federal Open Market Committee's (FOMC) main focus right now is to get inflation back to the 2% target. Price stability is the responsibility of the Federal Reserve and serves as the foundation of our economy. Without price stability, the economy doesn't work for everyone", explained Powell, who then warned the markets: to bring prices back under control it will be necessary to "maintain a restrictive policy for some time. History teaches us to exercise caution against premature monetary policy easing,” the Fed chairman said.
The US economy "is clearly slowing from 2021's high growth rates," but the "job market is particularly strong," he said.
Powell also commented on data released today on consumer prices. In July inflation PCE fell by 0,1% compared to the previous month and grew by 6,3% compared to a year before, against expectations for +1% and +6,8%, after +6,8% in the previous month . There core component of the figure, excluding volatile elements, grew by 0,1% compared to the previous month, against estimates for +0,2%, and by 4,6% compared to a year earlier, against expectations for +4,7 %.
According to the head of the Federal Reserve, the slowdown in the run of inflation in July is good news but a "single month of improvement" is not sufficient for the Fed.
As for the percentage of increase in interest rates in the FOMC meeting scheduled for September 20-21, Powell reiterated that the Fed will decide after a careful evaluation "of all the macro data that will arrive and the evolution of the prospects", without however overreacting on the amount of the increase ( 50 or 75 basis points). He then specified that "at a certain point, with the monetary line tightening further, it is probable that there will be a slowdown in the rate hikes".
We recall that in the last two meetings the US central bank raised interest rates by 75 basis points, bringing them to 2,25-2,50%.
Powell: "The Fed will use all the tools at its disposal against inflation"
"We will vigorously use all tools we have at our disposal to tame inflation,” Powell reiterated in Jackson Hole. The Federal Reserve "must continue to raise interest rates and keep them higher until it is sure that inflation is under control", a process which "is likely to weaken the labor market and cause some pain to families and businesses.”
Efforts to reduce inflation, he reiterated, will likely result in "some pain" for the economy but not "restoring price stability would be even more painful."
The reaction of the Stock Exchanges
Jerome Powell's “hawkish” attitude caused the immediate reaction of the Stock Exchanges which, after an uncertain day, veered into strongly negative territory during his speech in Jackson Hole. In Europe, the worst is Piazza Affari (-2,1%), followed by Madrid (-1,76%) and Frankfurt (-1,74%). Paris and London lose 1,5 percent. Wall Street was also heavy with the Dow Jones and the S&P 500 losing 1,3 and 1,6% respectively. The Nasdaq is down 2%.
