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JACKSON HOLE: The U.S. economy will need tight monetary policy “for some time” before inflation is under control, Federal Reserve Chair Jerome Powell said on Friday in remarks that warned of slower growth, a weaker job market and “some pain” for households and businesses.
“Reducing inflation is likely to require a sustained period of below-trend growth. Moreover, there will very likely be some softening of labor market conditions.
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,” Powell said in a speech kicking off the Jackson Hole central banking conference in Wyoming.
“These are the unfortunate costs of reducing inflation. But a failure to restore price stability would mean far greater pain.”
As that pain increases, Powell said, people should not expect the Fed to dial back its monetary policy quickly until the inflation problem is fixed.
Some investors anticipate the Fed will flinch if unemployment rises too fast, with some even penciling in interest rate cuts next year, an outlook U.S. central bank officials have leaned hard against in recent weeks.
To the contrary, some policymakers have indicated that even a recession would not dissuade them if inflation is not convincingly heading back to the Fed’s 2% target.
Powell gave no indication on Friday of how high interest rates might rise before the Fed is finished, only that they will go as high as needed.
“The historical record cautions strongly against prematurely loosening policy,” Powell said. “We must keep at it until the job is done. History shows that the employment costs of bringing down inflation are likely to increase with delay.”
Underscoring the same “raise-and-hold” message, Atlanta Fed President Raphael Bostic told Bloomberg TV that once the central bank’s policy rate is 100 to 125 basis points higher than the current 2.25%-2.50% range, “we should stay there for a long time.”
Bond markets appeared to take to heart the remarks signaling a higher-for-longer interest rate path, with traders beefing up bets on a third straight 75-basis-point rate hike at the Sept. 20-21 policy meeting and pricing in expectations the policy rate will get to the 3.75%-4.00% range by next March
