August 10, 2022

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Powell pledges to prevent inflation from getting under control in the long run

Powell pledges to prevent inflation from getting under control in the long run

US Federal Reserve Chairman Jerome Powell testifies before the House Financial Services Committee hearing in Washington, US, June 23, 2022.

Mary F Calvert | Reuters

Chairman of the Federal Reserve Jerome Powell He vowed on Wednesday that policymakers would not allow inflation to take over the US economy in the long run.

“The danger is that because of the multiplicity of shocks it starts to shift into a higher inflation regime. Our job is literally to prevent this from happening, and we will prevent that from happening,” the central bank chief said. We will not allow the transition from a low inflation environment to a high inflation environment.

Talking to European Central Bank Forum Along with three of his global peers, Powell continued his tough talk on US inflation which is currently running at its highest level in more than 40 years.

In the near term, the Federal Reserve established Multiple price hikes To try to subdue rapid price increases. But Powell said it is also important to halt long-term inflation expectations, so that they do not take root and create a self-fulfilling cycle.

“There is a clock running here where there has been inflation going on for more than a year,” he said. “It would be poorly managed risk to assume that longer-term inflation expectations will remain indefinitely anchored in the face of persistently high inflation. So we’re not doing that.”

Since the Fed began raising interest rates in March, market indications of inflation expectations have fallen significantly. gaze scale Over the next five years Which compares inflation-linked government bonds with benchmark Treasuries, has fallen from about 3.6% in late March to 2.73% this week.

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However, other surveys show that consumers expect prices to continue to rise. One such measure, from the University of Michigan, helped put pressure on the Fed Raising the benchmark interest rate by 0.75 percentage points At its meeting earlier this month.

The Fed is now responsible for lowering those expectations while not wrecking the economy. Powell said he was confident that would happen, although he acknowledged the risks ahead.

“We are very committed to using our tools to bring down inflation. The way to do that is to slow growth and ideally keep it positive,” he said. “Is there a risk that would go away? Certainly, there is a risk. I don’t agree that it’s the biggest risk to the economy. The biggest mistake he’s making…would be a failure to restore price stability.”