Fed Chief Powell Vows More Sharp Interest Rate Hikes — Even At Risk Of Recession
Federal Reserve Chair Jerome Powell delivered a stark message Friday: The Fed is determined to fight inflation with more sharp interest rate hikes, which will likely cause pain for Americans in the form of a weaker economy and job losses.
JACKSON HOLE, Wyoming (AP) — Federal Reserve Chair Jerome Powell delivered a stark message Friday: The Fed is determined to fight inflation with more sharp interest rate hikes, which will likely cause pain for Americans in the form of a weaker economy and job losses.
“These are the unfortunate costs of reducing inflation,” Powell said in a high-profile speech at the Fed’s annual economic symposium in Jackson Hole. “But a failure to restore price stability would mean far greater pain.”
Investors had been hoping for a signal from Powell that the Fed might soon moderate its rate increases later this year if inflation were to show further signs of easing. But the Fed chair indicated that that time may not be near.
Runaway price increases have soured most Americans on the economy, even as the unemployment rate has fallen to a half-century low of 3.5%. It has also created political risks for President Joe Biden and congressional Democrats in this fall’s elections, with Republicans denouncing Biden’s $1.9 trillion financial support package, approved last year, as having fueled inflation.
Stocks tumbled after Powell’s remarks, and bond yields rose, a sign that investors foresee more large interest rate hikes ahead. Some on Wall Street expect the economy to fall into recession later this year or early next year, after which they expect the Fed to reverse itself and reduce rates.
A number of Fed officials, though, have pushed back against that notion. Powell’s remarks suggested that the Fed is aiming to raise its benchmark rate — to about 3.75% to 4% by next year — yet not so high as to tank the economy, in hopes of slowing growth long enough to conquer high inflation.
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