In a widely anticipated speech, amid four-decade high inflation and with investors and analysts awaiting signs of future rate hikes, Federal Reserve Chair Jerome Powell said on Aug. 26 that to bring down inflation, “there will still be a pain to households and businesses.”

                By                    Yaёl Bizouati-Kennedy

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Speaking at the annual policy speech at Jackson Hole, Wyoming, Powell said in a very short speech, that “restoring price stability will take some time and requires using our tools forcefully to bring demand and supply into better balance,” according to a transcript of his remarks.

“Reducing inflation is likely to require a sustained period of below-trend growth,” he said. “Moreover, there will very likely be some softening of labor market conditions. While higher interest rates, slower growth, and softer labor market conditions will bring down inflation, they will also bring some pain to households and businesses. These are the unfortunate costs of reducing inflation. But a failure to restore price stability would mean far greater pain.”

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In terms of future rate hikes, Powell said that the decision at the September meeting will depend on the totality of the incoming data and the evolving outlook.

“At some point, as the stance of monetary policy tightens further, it likely will become appropriate to slow the pace of increases,” he added.

As was widely expected, in July, the Fed said it will raise interest rates by three-quarters of a percentage point rate in a back-to-back move following June’s historic raise. The new unanimous decision came amid inflation at a 41-year high and fears of a looming recession.

Powell said in a press conference on July 27 that, given the inflation data, said a rate hike was the “appropriate thing to do.”

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“The market reaction was for rate cuts to get priced further out and a minimal boost for additional pricing to get done before the end of the year,” Moya said. “Powell drove home the point that when they are done raising rates that we should expect them to stay there for a long period of time. There was no dovish pivot, but it seems financial markets are getting close to fully pricing in the remaining Fed rate hikes. Downsides for equities may remain limited if inflation pressures continue to ease sharply.”

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