U.S. Federal Reserve Chair Jerome Powell attends a press conference in Washington, D.C., the United States, on July 27, 2022. (Xinhua/Liu Jie)
"A lengthy period of very restrictive monetary policy was ultimately needed to stem the high inflation and start the process of getting inflation down to the low and stable levels that were the norm until the spring of last year," Federal Reserve Chair Jerome Powell said.
WASHINGTON, Aug. 26 (Xinhua) -- U.S. Federal Reserve Chair Jerome Powell on Friday said historical record cautions strongly against "prematurely loosening policy," stressing that the central bank "must keep at it until the job is done."
"Inflation is running well above 2 percent, and high inflation has continued to spread through the economy," Powell said in his annual Jackson Hole, Wyoming, policy speech.
"While the lower inflation readings for July are welcome, a single month's improvement falls far short of what the committee will need to see before we are confident that inflation is moving down," said Powell.
U.S. personal consumption expenditures (PCE) price indexes, the Federal Reserve's preferred inflation measure, soared 6.3 percent in July over the past year, after a 6.8-percent year-on-year gain in June, the Commerce Department reported on Friday.
Previous data showed that Consumer Price Index (CPI) in July surged 8.5 percent from a year ago, down from the previous month's fresh four-decade high but still at an elevated level. Consumer inflation has remained over 8 percent since March.
The PCE gauge takes into account how consumers change their behavior in light of higher prices and is a broader measure of consumer behavior than the CPI.
"In current circumstances, with inflation running far above 2 percent and the labor market extremely tight, estimates of longer-run neutral are not a place to stop or pause," Powell said.
A customer shops at a supermarket in Oregon, the United States, July 13, 2022. (Xinhua/Wang Ying)
The Fed chair highlighted the risk that the longer the current bout of high inflation continues, the greater the chance that expectations of higher inflation will become entrenched.
"History shows that the employment costs of bringing down inflation are likely to increase with delay, as high inflation becomes more entrenched in wage and price setting," Powell said.
The Fed chair noted that the successful Volcker disinflation in the early 1980s followed multiple failed attempts to lower inflation over the previous 15 years.
"A lengthy period of very restrictive monetary policy was ultimately needed to stem the high inflation and start the process of getting inflation down to the low and stable levels that were the norm until the spring of last year," he said.
"Our aim is to avoid that outcome by acting with resolve now," he said. "We must keep at it until the job is done."
The Fed chair also acknowledged the "unfortunate costs" of reducing inflation, while stressing that "a failure to restore price stability would mean far greater pain."
A man fuels his vehicle at a gas station in Los Angeles, California, the United States, June 1, 2022. (Photo by Zeng Hui/Xinhua)
"Reducing inflation is likely to require a sustained period of below-trend growth. Moreover, there will very likely be some softening of labor market conditions," Powell said.
"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," he said.
The Federal Open Market Committee, the Fed's policy-setting body, enacted two consecutive 0.75 percentage point increases in its June and July meeting, marking the largest back-to-back rate increases in decades. The target range for the federal funds rate is 2.25 to 2.5 percent.
Powell said a decision of another "unusually large" increase at the meeting in September will depend on the totality of the incoming data and the evolving outlook.
According to the Chicago Mercantile Exchange Group's FedWatch tool, the probability of a 75-basis-point rate hike at the Fed's next policy meeting was 60.5 percent on Friday. ■
