Federal Reserve chairman Jerome Powell cautioned Americans that efforts to slow inflation will “bring some pain to households and businesses.”
Powell’s remarks came during a speech at a Fed-sponsored economic policy symposium held in Jackson Hole, Wyoming.
“Price stability is the responsibility of the Federal Reserve and serves as the bedrock of our economy. Without price stability, the economy does not work for anyone,” Powell told attendees. “In particular, without price stability, we will not achieve a sustained period of strong labor market conditions that benefit all. The burdens of high inflation fall heaviest on those who are least able to bear them.”
Over the past two years, the U.S. has seen inflation skyrocket to a 40-year-high. Although some reports show inflation may start to shrink — energy prices saw a decline as demand for fuel diminished — the latest data on U.S. gross domestic product (GDP) show that the economy is technically in a recession.
Instability in market prices can lead to higher prices for groceries, building materials, less price transparency, random wealth distribution, and unproductive investment activities. Powell said restoring stability will take time and require the Fed to use tools at its disposal “forcefully” to better balance supply and demand.
“While higher interest rates, slower growth, and softer labor market conditions will bring down inflation, they will also bring some pain to households and businesses,” he explained. “These are the unfortunate costs of reducing inflation. But a failure to restore price stability would mean far greater pain.”
U.S. inflation hit 8.5 percent for the period ending July 2022, down from 9.1 percent — the highest inflation since 1981 — the month prior.
Powell said officials are working to reduce inflation to two percent. The Federal Open Market Committee (FOMC) has increased the fed funds rate in 75 basis point increments two consecutive months this June and July, marking the Fed’s fastest pace of rate hikes since the 1980s. Some economists are expecting a rate increase of only 50 basis points in September, which would be a sign that efforts to constrain inflation may be working.
“Our responsibility to deliver price stability is unconditional,” Powell reassured investors and the public.
“It is true that the current high inflation is a global phenomenon, and that many economies around the world face inflation as high or higher than seen here in the United States,” he said. “It is also true, in my view, that the current high inflation in the United States is the product of strong demand and constrained supply, and that the Fed’s tools work principally on aggregate demand.”
Powell noted that there “is clearly a job to do in moderating to better along with supply” and that the Fed is “committed to doing that job.”
