The fight against inflation in the United States “will make families and businesses suffer”, but resigning would be much worse for the economy, warned the president of the Federal Reserve (Fed, central bank), Jerome Powell, in an expected speech on Friday.
In a rare forceful statement at the annual conference of central bankers in jackson hole (Wyoming), warned that the fed will use “vigorously all your tools” to combat the rise in prices, through the rise in interest rates.
In addition, he argued that returning to price stability “it will take time” and will imply “a long period of weaker growth” and a weakening of the labor market.
The 12-month inflation in the United States moderates after the interest rate hikes by the central bank, and marked 8.5% in July against 9.1% in June, according to the consumer price index (PCI). These are record levels in 40 years.
This Friday, the PCE index, the preferred by the Fed that always shows lower percentages than the PCI, indicated that the 12-month price rise reached 6.3% in July compared to 6.8% in June, thus confirming a moderation of the escalation.
“Although these latest drops in July are welcome, an improvement in a month is far from enough” and will need to be confirmed, Powell stressed.
The fed he wants the rise in prices to return to the level of 2% per year, considered healthy for the economy.
This policy will haveunfortunate costs”, he crushed Powellwho reiterated that the body is ready to “another exceptionally strong rate hike” at the next meeting of its monetary committee in September, after two consecutive increases of 75 basis points.
The head of the central bank warned the markets that the ideal level of rates considered neutral for the economy -because it neither cools it nor overheats it-, estimated at 2.5%, is not today an objective for the organism.
“Long-term neutral rate estimates are not a level to pause” in interest rate increases, he summarized.
Facts and realities
While Powell gave his very brief speech, the markets received the inflation data and also the final estimate of consumer confidence for August.
The confidence of Americans in the economy rose in August thanks -precisely- to a moderation in inflation, according to the final estimate by the University of Michigan published on Friday.
The index stood at 58.2 points, up 13% from July, and well above the 55.3 points forecast by analysts.
Powellhowever, recalled the experience of one of his predecessors, Paul Volckerknown for his fight against price hikes through tough decisions, and said that those responsible for the fed they should not shy away from their obligations.
“We must carry on until the job is done”, while warning of any easing “early” of the rate policy.
Former Bank of England board member Adam Posen, who heads the Peterson Institute for International Economics in Washington, said he expects the fed reach 4% in February, but stated that the US central bank could “go further if necessary”, and the chances of that being reversed in 2023 are “very very low”.
Currently, the reference interest rates of the fed they are located in a range of 2.25-2.50%.