Powell said that lowering inflation will generate “pain”, but ratified the offensive to control it

WASHINGTON.- Leaving no room for double readings, the president of the Federal Reserve (Fed), Jerome Powell, reiterated its strong commitment to the a frontal fight against inflation and the adjustment in the United States by pointing out that its offensive to stabilize the economy will generate “pain”But the failure to control the rise in the cost of living, which has reached a peak for the last 40 years, will generate “much greater pain”.

In one of his most anticipated speeches, Powell gave his overview of the United States economy and the Federal Reserve’s strategy to lower inflation during the Jackson Hole meeting in Wyoming, a gathering of investors, bankers, international bureaucrats, analysts and academics that this year gained enormous notoriety given the sensitive moment that the world’s leading economy is going through.

Determined to sustain his offensive against inflation, Powell said that price stability is “the foundation” of the economyand he cited in his speech Paul Volcker, who in the early 1980s unleashed a brutal rate hike that plunged the economy into a recession and ended up leading Jimmy Carter to defeat against Ronald Reagan, but finally managed to grip the last peak inflation that the country suffered.

Powell indicated that, now, also, lowering inflation will have a cost, but he promised to stay the course “until the job is done.”

“Restoring price stability will take some time,” he said, at the start of his brief message, which lasted about ten minutes. “Reducing inflation is likely to require a sustained period of below-trend growth. In addition, labor market conditions are likely to ease. While higher interest rates, slower growth and softer labor market conditions will reduce inflation, they will bring some pain to households and businesses. These are the unfortunate costs of reducing inflation, but failure to restore price stability will mean much greater pain”, he deepened.

Powell welcomed the respite from inflation in July, when the index posted a 0% monthly rise, but nonetheless left clear signs that the tightening will continue: He said it is likely necessary to “maintain a restrictive policy for some time,” and that the file advised against “relaxing the policy prematurely,” two clear signs that the “hawkish” stance adopted by the Fed this year will persist.

“We must continue until the job is done,” Powell said as he closed his message. “We are taking strong and swift action to moderate demand so that it is better aligned with supply and to keep inflation expectations anchored. We will continue to do so until we are sure the job is done,” she closed.

Powell’s speech was followed with great attention by the markets, attentive to any sign that suggested a change of course in the monetary policy of the United States. did not arrive The message left by Powell, and later reinforced by other Fed members, is that the US central bank will do whatever it takes to control pricesdespite the fact that the economy fell into a technical recession in the first half of this year, and most forecasts predict an even less auspicious 2023.

Powell said the signals from the economy are “mixed.” For one, gross domestic product, the broadest measure of a country’s economic activity, fell in the first two quarters of the year, a technical definition of recession. But consumption and the investment are holding firm for the time being, and employment continues to grow. Consumer optimism has picked up in recent weeks after the fuel price and inflation took a breather in July, a trend that analysts expect to continue in August.

Fuel prices began to decline in the United StatesMorry Gash – AP

All in all, inflation remains at a peak for the last 40 years above 8%, and the sharp rise in interest rate that the Fed has orchestrated to lower its target of 2% per year will generate an inescapable slowdown in the economy. The question is whether the Fed will get the economy to make a “soft landing,” or whether it will end in a recession.

Powell was determined to maintain his crusade even at the cost of an eventual recession.

“Volcker’s successful disinflation in the early 1980s followed multiple failed attempts to reduce inflation over the previous 15 years,” Powell said. “Ultimately, it took a long period of very tight monetary policy to curb high inflation and start the process of bringing inflation down to the low and stable levels that were the norm until the spring of last year. Our goal is to prevent that outcome by acting decisively now,” he stated.

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