by Howard Schneider
JACKSON HOLE, Wyoming (Reuters) – The U.S. economy will need tight monetary policy “for a while” before inflation is brought under control, which means slower growth, a tougher jobs market weak and “some pain” for households and businesses, Federal Reserve Chairman Jerome Powell said Friday.
“Lower inflation will likely require a sustained period of below-trend growth,” Jerome Powell said in his speech to the central bankers’ symposium in Jackson Hole, Wyoming.
“While higher interest rates, slower growth and easing labor market conditions will bring inflation down, it will also be painful for households and businesses,” he added.
Although the difficulties are growing, the Fed should not be expected to cut rates quickly until the inflation problem is resolved, stressed Jerome Powell.
Investors say the Fed could change its rhetoric if unemployment rises too quickly, with some even predicting interest rate cuts next year, a prospect that U.S. central bank officials have strongly opposed in recent years. weeks.
Some members of the Fed have indicated that even a recession will not deter them from acting until the consumer price index is convincingly close to the 2% target set by the institution.
POWELL WARNS OF PREMATURE MONETARY EASING
Jerome Powell gave no indication on Friday of the pace and extent of monetary tightening, contenting himself with saying that rates will be as high as necessary.
“Historical data strongly warns against premature policy easing,” Powell said. “We have to keep going until the job is done.”
Interest rate futures suggest that some traders are beginning to consider the path outlined by the Fed Chairman but they continue to expect the central bank to raise the fed funds rate range to 3.75%-4% by next March before a slow decline six months later.
Statistics released on Friday showed a slowdown in the PCE consumer price index, closely watched by the Fed, to +6.3% year on year in July, from +6.8% in June.
But “a single month’s improvement is a far cry from what the Committee will need to see before we are confident that inflation is coming down,” said Jerome Powell.
The decision to raise rates “will depend on the totality of the data received and the evolution of the outlook”, he continued.
(Report Howard Schneider, French version Laetitia Volga, edited by Sophie Louet)