The Fed must act firmly against inflation, in order to avoid the painful consequences for households of prices which would continue to escalate, as in the late 1970s and the beginning of the 1980s, its chairman, Jerome Powell, said Thursday.
We must act firmly as we have done, and we must persevere until the job is done. To avoid this, said the president of the American central bank (Fed) at the annual monetary conference of the Cato Institute.
We think we can avoid the kind of steep social costs the Fed had to impose at the time to bring down inflation and establish a long period of price stability, he added.
The United States experienced a period of very high inflation in the 1970s, and until the beginning of the 1980s. The rise in prices had come close to 15% over one year.
Jerome Powell spoke about what Paul Volcker (Fed Chairman from 1979 to 1987, editor’s note) and the Fed did to finally bring inflation under control after several failed attempts, pointing out that the public had come to regard higher inflation as the norm and expect it to continue.
Such high inflation expectations on the part of consumers maintain the inflationary spiral, making the fight against this rise in prices even more painful.
The Fed had to, under Paul Volcker, take drastic measures to bring inflation back into line.
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Time is running out, warned Jerome Powell again.
He also pointed out that history warns against premature easing of monetary policy, signaling that the Fed should continue to tighten policy in order to slow consumption, despite recession fears.
The Fed has raised its key rates four times since March, and they are now in a range of 2.25 to 2.50%.
It should raise them again on September 21, during the next meeting of the Monetary Policy Committee (FOMC), its decision-making body. Another sharp rise, of three-quarters of a percentage point, is on the table.