The Federal Reserve will not allow the economy to slip into a “high inflation regime,” even if it means raising interest rates to levels that increase risk, Fed Chair Jerome Powell insisted on Wednesday the US central bank will do whatever it takes. Gave it, insisted on it. – Adopts an approach to minimize future price increases.
“The clock runs on how long you stay in a low inflation regime… the risk is that you start transitioning to a high inflation regime because of a deluge of shocks, and our job is to really keep that from happening. Have to stop. And we will prevent that from happening,” Powell said at a European Central Bank conference.
While “there is a risk” the Fed slowing the economy more than necessary to bring inflation back to the central bank’s 2% target, Powell said, “I don’t agree it’s a big risk. To restore price stability,” Powell said. To fail would be a big mistake.”
The Fed chief used his presence at the ECB’s annual conference in Sintra, Portugal, to convey what has now become the guiding policy head of the US central bank: it is necessary to regain control of inflation, even if it means the economy to raise interest rates to pushing levels. Leading to a recession or that leads to rising unemployment.
New data from Thursday is expected to show that the personal consumption spending price index more than tripled the Fed’s 2% inflation target in May. The Fed raised interest rates by three-quarters of a percentage point earlier this month because of a lack of progress in bringing inflation back to that level, and policymakers have said they will do so at the July 26-27 policy meeting. Ready to approve another increase. ,
Fed policymakers now see the target federal funds rate rising to 3.4% by the end of the year, well above the level they think will begin to restrict the economy in the long run, and the current level between 1.5% and 1.75%. Almost double that needs to be done. ,
Powell said the US economy remains “in a fairly strong position”, and he thinks it will be able to withstand tighter credit conditions, while avoiding a recession or a significant increase in the unemployment rate.
But the path to that so-called “soft landing” is becoming “significantly more challenging” in the long run leading to higher inflation, Powell said, and policymakers are particularly attuned to the risk that wages and The public’s expectations about the future behavior of prices may eventually be. Also accelerate.
Using language similar to Powell’s, Cleveland Fed Chair Loretta Meester told the ECB conference that, just as policymakers once assumed the greater risk was to suppress inflation too aggressively, and in the process, jobs and jobs were lost. Barring economic growth, the coronavirus pandemic has shifted the balance. Of risks.
“The more costly error is assuming that inflation expectations are set when they are not,” Meester said.