A famous sports brand coined a motto that said, more or less, “there is no success without suffering”. Jerome Powell, president of the Federal Reserve (central bank) of the United States, appealed to that philosophy of the marathoner in his expected speech in times of inflation from the Jackson Hole symposium, a place described as an idyllic corner of Wyoming.
To businessmen, investors, citizens in general, Powell warned them that fighting against the exaggerated rise in the cost of living will bring "some pain" to both homes and businesses.
He also warned of a setback in the thriving labor market, with unemployment at 3.5%, one of the lowest historical records, while the Fed continues its wave of interest rate hikes, which started the first quarter of 2022. So far it has already meant a rise of 2 points in the price of money, up to 2.25%-2.5% where it is now. This rate increase is the fastest in the short term since the US central bank began using this tool in the early 1990s.
Powell's words confirmed that this situation will continue at the September meeting, without clarifying whether the rise will be 0.5 or 0.75 points – “it will depend on the next data and how the outlook evolves” – and beyond. "There is no place to stop or pause," he said.
“It is very likely that there will be some weakening of the labor market,” Powell stressed. “While higher interest rates, slower economic growth and weaker labor market conditions will bring about lower inflation, they will also bring some pain to households and businesses,” he remarked. "These are unfortunately the costs of reducing inflation," he remarked. "But failure to restore price stability would mean much greater pain," he added.
On this occasion, face-to-face assistance was recovered in Jackson Hole after the pandemic. A year ago, when this meeting was held remotely, Powell recorded something that represents a real failure. He then assured that the price increase was "temporary". There was no need to think about it any more, a circumstantial issue, collateral damage from the confinement that would dissolve. This consideration has followed him like a shadow.
So Powell showed up at Jackson Hole this time clad in much more of a hawk than a seagull character. This time he was not a hundred-meter sprinter, but he has become a long-distance runner, a long-distance athlete.
His words, which sent the Dow Jones plummeting, up until then higher, were much more direct than usual. European stock markets also suffered, with the Spanish Ibex falling 1.51%.
"Reducing inflation is likely to require a sustained period of below-trend growth," he insisted. "Restoring price stability will require maintaining a restrictive policy stance for some time," he insisted.
Despite a small slowdown in prices during the month of July (an upward rate of 8.5% annualized, compared to the 9.1% registered in June), especially due to the drop in fuel costs, inflation remains in the United States to their highest levels in four decades. “This historical record strongly cautions against premature relaxation of our policy,” Powell said. His analysis came amid sentiment that inflation has peaked, though there is no sign of a decline.
"While July's downward inflation readings are welcome, a single month's improvement is well below what the Fed needs to see before we are confident inflation is coming down," he said in a statement. speech much shorter than usual.
He argued that the US economy continues to exhibit “strong underlying momentum, despite a mix of opposing signals.
GDP contracted for the second consecutive time this year in the April-June quarter. This circumstance is technically equivalent to a recession.
"We are taking strong and rapid action to moderate demand and better align it with supply and supply so that inflation remains anchored," he added. “We will continue like this until we are certain that we have done our job,” Powell reiterated.
"Price stability is the responsibility of the Federal Reserve and serves as the foundation of our economy," he continued. “Without price stability, the economy doesn't work for anyone,” she stressed.
Part of the problem, analysts said, is that raising rates is a forceful tactic. This tool cannot address all the ways that people experience inflation in their daily lives, nor does it encourage consumption
