Powell Jackson Hole speech to discuss inflation, Fed rate hikes

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For months, the Federal Reserve under increasing pressure to contain inflation without plunge the economy into recession. On Friday, Chairman Jerome H. Powell will outline his plan for how the central bank could make that happen.

Policy makers, financial markets and people in the United States — and the worldare curious about hints about the Fed’s impending rate hikes and the broader outlook for the economy. Powell’s comments, which will be delivered Friday morning at the annual Jackson Hole Economic Symposium, will be critical to the public’s understanding of how the Fed can rid the economy of its biggest problem while maintaining signs of strength, with especially the still functioning labor market.

Jackson Hole: Where Fed Officials Gather And Workers Can’t Afford To Stay

Powell’s long-awaited speech will also be crucial to his own credibility. In comments to last year’s conference, he redoubled his belief that inflation would be temporary. The speech does not age well.

“The Fed feels like a passenger on a bus, along with Wall Street and investors and economists. The Fed doesn’t feel like the bus driver,” said Michael Strain, director of economic policy studies at the conservative American Enterprise Institute. “One way you assert yourself as a bus driver is by clearly stating what you did wrong, explaining why you did it wrong and communicating how you will do it differently in the future.”

US policymakers misjudged the inflation threat until it was too late

To cut inflation from a 40-year high, the Fed must rely on on one powerful tool: interest rates. Higher rates are designed to slow demand by making many loans, such as for cars or mortgages, more expensive. The housing market is cooling, for example, because rising mortgage rates are causing aspiring homeowners to drop out.

Inflation eased slightly in July, clocking in at 8.5 percent year-on-year, down from the previous month’s highlike dropping gas prices helped lower total costs. But Fed leaders say they need to see months of continued improvement before they know if rate hikes are working.

The challenge is that interest rate hikes are delayed and the rate hikes the bank is experiencing now could slow economic activity later this year or early next year. The US economy already contracted in the first two quarters of 2022, raising fears of a recession and indicating that the economy is already slowing significantly, even if inflation remains high.

Inflation eased in July from a year ago as energy prices fell

“July looked like that price pressure was easing somewhat, but certainly not enough to say ‘we’re on the right track,'” Esther George, president of the Kansas City Fed, told Yahoo Finance on Thursday. “So I think we have more data to see. And I think we have more work to do to see that trend go down.”

Part of the problem is that interest rates are a blunt tactic, and they cannot address all the ways people feel inflation in their daily lives. Tariff hikes can’t build new homes or keep gas prices low. And they can’t boost consumer confidence, especially at a time when many families and entrepreneurs don’t feel the economy is working for them, despite a strong labor market and resilient consumer spending.

Politically, high inflation has weighed on the president Biden’s approval ratings and complicated the Democratic Party’s legislative agenda. That’s not strictly a problem for the Fed, which is designed to be independent and whose officials serve terms that don’t align directly with presidential administrations. But it does put the work of the central bank under close scrutiny from politicians.

Earlier this month, the White House and Congressional Democrats won a major victory with the passage of the Inflation Reduction Act, which focuses on the climate crisis, lowering health care costs and raising taxes on large corporations. But Republicans continue to hammer Democrats on hefty stimulus packages earlier in the pandemic, claiming that more federal spending or loan cancellations will further overheat the economy.

Fed raises interest rates by three-quarters of a percentage point to fight inflation

For the Fed officials who descended on Jackson Hole this week, the past few years have been dizzying. It remains extremely difficult for officials to get a clear picture of the economy. And the cost of getting those ratings wrong was high.

In last year’s Jackson Hole speech, Powell explained why he believed inflation would be a temporary feature of the economic recovery from the pandemic-induced recession. The Fed moved closer to phasing out some of its emergency support to the economy, but rate hikes were far from being considered. Powell also delivered his speech virtually, as the summit was canceled during last summer’s delta variant of the coronavirus.

Twelve months later, and now back in Jackson Hole for the first time since the start of the pandemic, the Fed is in a race to curb inflation that has soared and spread further through the economy. Supply chain woes, high consumer demand and the Russian invasion of Ukraine have kept prices for gas, groceries, rent and everything in between high. And suddenly, the central bank rates have risen at the most aggressive pace in decades.

The Fed has raised interest rates four times this year, most recently by three-quarters of a percentage point in July. It is widely expected that further hikes will follow and that the Fed will raise rates again at policy meetings in September, November and December. But it’s unclear whether central bankers will keep up with such hefty increases, or whether they will decide to scale back interest rate hikes to prevent the economy from slowing down too abruptly and triggering a recession.

It would be unusual for Powell to use his speech to say exactly what the Fed plans to do next month. Still, the markets are watching closely for any signs of what’s to come. Shares could rumble Friday if Powell is stronger or more relaxed than expected.

“He wanted to tell a somewhat hopeful story: ‘this is something we can achieve,'” said Tim Duy, a Fed expert at the University of Oregon and chief economist at SGH Macro Advisors. “‘We know inflation hurts all of you, and we want to rectify that situation, but we don’t want to do it in a way that causes it any more pain.'”

The Valley Voice
The Valley Voicehttp://thevalleyvoice.org
Christopher Brito is a social media producer and trending writer for The Valley Voice, with a focus on sports and stories related to race and culture.

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