Fed Chair Jerome Powell discusses interest rate targets and inflation at Jackson Hole summit
Date: 2023-08-26 Author: Karina Ziganova Categories: BUSINESS, IN WORLD
According to Federal Reserve Chairman Jerome Powell, the strong growth of the US economy may require additional interest rate hikes to ease inflationary pressures.
Speaking at the Jackson Hole Economic Symposium, the annual conference of central bankers in Jackson Hole, Wyoming, Powell outlined the uncertainty surrounding the economic outlook, pointing to the possible need for further restrictive monetary policy, according to the Associated Press.
Inflation is still too high
Even though inflation has eased from its peak, Powell argued that it remains excessively high. He also stressed that the Federal Reserve is still watching closely for signs that the economy is not slowing down as predicted. The central bank stands ready to raise rates further if necessary and plans to maintain a restrictive policy level until it sees substantial evidence of a sustained decline in inflation to the 2% target.
As Powell noted, the economy is expanding at an unexpected pace, coupled with persistent consumer spending, potentially fueling high inflationary pressures. The observation marks a significant departure from his statements the previous year, when he explicitly warned of the Fed's continued sharp rate hikes to curb rising prices.
The Fed's rate hikes led to massive increases in lending rates, making it harder for Americans to buy houses or cars and for businesses to finance expansion. Despite this and contrary forecasts, the US unemployment rate remained stable at 3.5%, just above a half-century low. Steady inflation and strong employment figures highlight Powell's concerns about rapid economic growth, pointing to the potential need for higher interest rates to act as a constraint.
Contrary to expectations at the beginning of the year, most traders are now not predicting interest rate cuts until mid-2024. Central bank policymakers believe their key rate is high enough to contain the economy and cool growth, hiring and inflation, Powell said. However, he acknowledged the difficulty of determining the necessary borrowing costs to slow the economy, leading to ongoing uncertainty about the effectiveness of the Fed's policy to reduce inflation.
While traders and economists are showing heightened optimism about a soft landing — the Fed will reach its inflation target without triggering a sharp recession — others remain skeptical.
