Federal Reserve Chair Warns of Ongoing US Inflation Fight and Suggests More Rate Increases

## Powell Signals Inflation Fight Continues Amid Economic Complexity

Federal Reserve chair Jerome Powell, during a well-attended speech on Friday, cautioned that the struggle against inflation in the US is far from over, sparking speculations of further interest rate hikes. Powell made these remarks while addressing the Federal Reserve Bank of Kansas City’s annual gathering of central bankers in Jackson Hole, Wyoming.

## Interest Rates May Rise Further to Curb Inflation

The Federal Reserve chair asserted that the US inflation rate is still worryingly high, hinting at the potential need for additional interest rate hikes to curtail it. “The central bank will keep at it until the job is done,” Powell assured. This comes after the Fed escalated rates to a 22-year pinnacle in July, marking the 11th rate rise in 17 months. Despite these measures, the annual inflation rate has seen a steep drop, plunging from a 40-year record of 9% last June to approximately 3%.

## US Economy Shows Mixed Signals Amid Rate Hikes

Despite the US recovering from the pandemic and subsequent economic repercussions, the economic landscape remains intricate for Powell. Consumer expenditure and the US employment market have stayed vigorous even in the face of soaring interest rates. Meanwhile, despite the overall inflation rate decreasing, prices of fundamental necessities such as food, housing, and gas are far higher than pre-pandemic levels.

Aiming for a “soft landing” for the economy, Powell hopes to diminish inflation without provoking a sharp surge in job losses. However, he acknowledged the possibility that the historically steep increase in rates may not yet have permeated the broader economy. “We are navigating by the stars under cloudy skies,” Powell remarked.

## Fed Remains Attentive to Economic Fluctuations

According to Powell, the Fed intends to “proceed carefully” in deciding whether to tighten further. He reiterated the Fed’s commitment to reducing inflation to their 2% goal, stating readiness to raise rates further if necessary. Powell also noted that the economy continues to grow above trend, a development that could risk further progress on inflation and warrant tighter monetary policy.

The Federal Reserve chair highlighted the challenge of interpreting conflicting signals from an economic picture where inflation has, by some measures, significantly slowed without causing substantial harm to the economy. This has raised questions about whether Fed policy is restrictive enough to complete the job. He expressed concern that continued consumer spending on a broad array of services and a tight labor market may impede a return to a 2% inflation rate.

## Further Economic Slowdown Expected

Powell stated that it was challenging to precisely gauge the extent to which the Fed’s current 5.25% to 5.5% benchmark interest rate had cleared the “neutral” rate of interest needed to slow the economy. He noted a recent decline in underlying inflation measures were welcome, but cautioned that sustained lower inflation would likely necessitate an economic slowdown and a mild softening in labor market conditions. “Two per cent is and will remain our inflation target,” Powell concluded.

Original Story at www.theguardian.com – 2023-08-26 01:30:00