Powell says Fed will act ‘forthrightly’ until inflation job is done

Federal Reserve chair Jerome Powell said the US central bank will not flinch in its efforts to curb inflation "until the job is done".

"We need to act now, forthrightly, strongly as we have been doing," Powell said on Thursday (Sep 8) in remarks at the Cato Institute's monetary policy conference in Washington. "My colleagues and I are strongly committed to this project and will keep at it." He spoke with a moderator in a virtual question-and-answer session.

 He said the Fed must continue to act "strongly" to cool demand and contain price pressures to avoid a repeat of the inflation surge the US economy suffered in the 1970s and 1980s. His predecessor from that era, Paul Volcker, had to take extreme measures as high inflation had become entrenched.

Powell has acknowledged that the aggressive campaign could cause some pain, but he has stressed repeatedly that acting now will prevent more damaging consequences down the road.

US annual inflation spiked to a painful 14.8 per cent in early 1980 and didn't fall into single digits until late the following year.

"The clock is ticking," Powell warned. And, he said, "history cautions strongly against prematurely loosening policy", once again dousing hopes the Fed might cut interest rates next year as the economy slows.

US central bankers are raising interest rates rapidly to curb the hottest inflation in 4 decades. They next meet on Sep 20-21 and Powell has kept the option open for another 75 basis-point move, following increases of that size in June and July, or a half-point increase. He's said the decision depends on the "totality" of the incoming data.

Officials will get an important update on Tuesday with the release of consumer prices for August. Economists surveyed by Bloomberg forecast an 8.1 per cent rise for the 12-month period versus 8.5 per cent in July.

Investors have hardened their bets that the Fed would go big again after hawkish comments from other Fed officials. That trend continued after the European Central bank raised rates earlier on Thursday by 75 basis points and the futures markets show a Fed hike of that size almost fully priced in for later this month.

The US economy has fared well on the back of steady consumer spending even as higher rates bite down on housing and investment. The labour market remains strong with unemployment at 3.7 per cent

Fed officials are hoping to engineer a rare soft landing where growth moderates and inflation falls with a low cost to employment. But they are also concerned that public expectations on future prices start to drift higher after remaining above their 2 per cent target for more than a year. BLOOMBERG, AFP

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