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In a conference done on Thursday, the Chairman of the Federal Reserve, Jerome Powell, emphasized his pledge to continue with his fight against inflation, using an aggressive implementation of policies and mitigation measures to lessen the effects of the country’s economic downturn.
The 40th Annual Monetary Conference hosted by Cato Institute brought together experts and other officials to discuss fiscal matters of great importance to the country.
During the conference, Powell said, “The Fed has, and accepts, responsibility for price stability. We need to act right now — forthrightly, strongly.”
Powell has since informed the public of the robust measure the Fed will take under his leadership. In an annual symposium by the Jackson Hole last month, the Fed chairman said that the Federal Reserve is conditioning the public on the inevitable rise of the prices of commodities that could alter the spending habits of the citizens, including their income and investment habits.
According to Powell, the public might think that higher inflation in the country is supposed to be the norm. He justified that this mindset might be invoked by the failed attempts of authorities to control prices in the market. Further, Powell ultimately attributes this to the Fed’s inaction and unwillingness to impose tighter limits that could upend the skyrocketing prices of the country.
Powell’s belief that people are already thinking of inflation as a normal occurrence is affirmed by the Vice Chairperson of the Federal Reserve, Lael Brainard. “It is especially important to guard against the risk that households and businesses could start to expect inflation to remain above 2% in the longer run,” she said.
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The future of rates
Many investors are already expecting an increase in the basis points that will be set by the Feds during their policy meeting this month. According to them, at least a 75-point basis hike is expected. The increase will most likely happen even if the next release of the Producer Price Index and Consumer Price Index turns out better than expected.
“Their message is that we should expect them to remain in restrictive policy mode even after we start to see inflation data head in the right direction,” He went to pretty extensive lengths to dispel assumptions of any pivot coming forward soon,” said Keith Buchanan, Globalt Investments portfolio manager.
The Feds previously received raps after it has downplayed the looming inflation months ago. However, the agency’s senior officials have already apologized to the public and said that they have learned their lesson and will strive to thwart its effects.
“It would be sufficient for them to acknowledge that the near-term rate is trending in the right direction, but, definitely, they should not allow that to [influence] their trajectory. The real dilemma is, how much good data do they need in hand before they pause?” said Brad Conger, a deputy chief investment officer from Hirtle Callaghan.
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More work for the Feds
Apart from the current challenges the central bank faces, the possibility of low unemployment seems to exacerbate it. At the current time, the unemployment rate of the United States is experiencing the lowest since 50 years ago. In addition, Cleveland Federal Reserve Bank President Loretta Mester said that inflation has become the country’s key economic challenge now.
“Given current rates of inflation, I believe that the Fed has more work to do in order to get inflation under control. This will entail further rate increases to tighten financial conditions,” the president said.
During last month’s conference, Powell expressed the need to consider these factors.
“Our responsibility to deliver price stability is unconditional. 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,” Powell said.
“The longer the current bout of high inflation continues, the greater the chance that expectations of higher inflation will become entrenched,” the Chairman added.
Source: CNN
