JACKSON HOLE, VA (AP) — Federal Reserve Chairman Jerome Powell sent a clear message Friday: The central bank remains determined to fight inflation, with further hikes in interest rates looming large as the weakening economy and job losses hit Americans. likely to bring problems.
“These are the unintended costs of reducing inflation,” Powell said in a high-profile speech at the Fed’s annual Jackson Hole symposium. “But not restoring price stability will lead to huge problems.”
Investors were expecting signs from Powell that the Fed will soon reduce its interest rate hikes if inflation continues to show signs of falling. But the head of the Fed indicated that moment would not be close.
The massive price hike has angered most Americans, even though unemployment levels fell to 3.5% at the same time, the lowest level in half a century. He has also posed a political risk to President Joe Biden and Democratic lawmakers in November’s election. Republicans say Biden’s $1.9 trillion financial aid package, passed last year, fueled inflation.
Powell’s remarks caused stocks to fall and Treasury yields to rise, a sign that investors are expecting big rate hikes. Some on Wall Street see an economic slowdown in the coming months or early next year, which would prompt the Fed to cut rates.
However, many Fed officials have dismissed that idea. Powell’s remarks suggest the Fed is aiming to raise its benchmark rate — between 3.75% and 4% — next year, but not so much that it causes the economy to collapse, in hopes of slowing growth. To beat inflation.
“What they’re trying to sneak into the mind of the market is that their approach turns the prospect of (rate cut) into a sharp reversal,” said Eric Vinograd, economist at the AllianceBernstein Wealth Management Agency. Even if it hurts.