US Federal Reserve poised to raise interest rates for inflation control
The chairman of the US Federal Reserve, Jerome Powell, announced last Friday that they are prepared to increase interest rates further if needed. The central bank aims to maintain high rates until inflation approaches its 2% target. Powell highlighted that despite the recent decline of inflation from its peak, it remains excessively high.
In his address to the annual symposium of economic and monetary policymakers in Jackson Hole, Wyoming, Powell acknowledged the balance between the decrease in the rate of price increases over the past year and the unexpected overperformance of the US economy.
The Federal Reserve will “proceed carefully” in deciding whether to tighten further. However, the central bank is yet to conclude if its benchmark interest rate is high enough to ensure a return of inflation to the 2% target.
“Bringing inflation down to our 2% goal is the Fed’s responsibility, and we will do so.”
The central bank has significantly tightened policy over the past year, and they are ready to raise rates further if necessary. The bank intends to maintain a restrictive policy until they are confident that inflation is moving sustainably towards its objective.
Powell also highlighted a new concern raised by recent data. The economy may not be cooling as expected, with consumer spending remaining robust and a potential rebound in the housing sector. Continued growth above the trend could put further progress on inflation at risk and may warrant further tightening of monetary policy.
The Federal Reserve is currently grappling with conflicting signals from an economy where inflation appears to have significantly slowed without much economic cost. This is positive but raises concerns that the central bank’s policy may not be restrictive enough to achieve its objectives.
Powell reiterated the standard Fed diagnosis of inflation progress. The recent decline in underlying inflation measures, stripping out food and energy prices, is good news. Powell emphasised that it’s not enough time to be celebrating yet.
“Two months of good data are only the beginning of what it will take to build confidence that inflation is moving down sustainably.”
He also stressed that further progress will be essential, given the size of the broader services sector, excluding housing. Achieving this will likely require an economic slowdown. He also noted that achieving a sustainable return to 2% would likely require a period of economic growth below the trend and some softening in labour market conditions.
“Restrictive monetary policy will likely play an increasingly important role. Two percent is and will remain our inflation target.”
The central bank is committed to achieving and sustaining a sufficiently restrictive stance of monetary policy to bring inflation down to that level over time, reports Bangkok Post.
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