Interest rates are heading higher and will stay there “for some time”: Jerome Powell
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Kansas City, Aug 29: Federal Reserve Chair Jerome Powell issued a fresh warning to investors doubting his resolve to fight inflation: interest rates are heading higher and will stay there “for some time.”
The message from Jackson Hole -- hammered home by Powell in a terse five-page speech Friday and endlessly repeated by his colleagues -- is that the central bank will not blink in the fight to cool prices.
“Restoring price stability will likely require maintaining a restrictive policy stance for some time,” Powell told the audience at the Fed’s annual retreat in Wyoming’s Grand Teton National Park. “The historical record cautions strongly against prematurely loosening policy.” “Higher for longer is the new watchword,” said Peter Hooper, global head of economic research for Deutsche Bank AG. Equity prices tumbled as the message was absorbed, with the S&P 500 closing 3.4% lower for its worst day since mid-June. Recent readings on the US economy have been mixed, with the labor market still strong but demand cooling in some places, particularly the housing market, and a number of economists see severe recession risks next year. Tellingly, Powell spelled out that running a sustained, tight policy until inflation turns lower would bring “some pain” to households and businesses. “There is no talk of a soft landing here,” said Derek Tang, an economist at LH Meyer, a policy analysis firm in Washington, referring to the hope the Fed can get inflation back to its 2% target without causing a sharp rise in unemployment or recession. Promising to keep policy tight “lends credibility to coming rate hikes,” he said. “The level of rates is only restrictive if they raise and promise to hold there for a while.” Powell’s remarks at the retreat, which gathers top policymakers from around the world, come as US central bankers confront the highest inflation in 40 years. Officials were slow to spot the risk -- Powell’s speech at Jackson Hole a year ago argued that price pressures were narrowly based and would wash out -- and are now moving aggressively to keep prices from accelerating further.
Officials raised rates by 75 basis points at each of their last two meetings and signaled the same could be on the table again when they gather next month. Powell said that the size of the increase in September would be determined by the “totality” of the incoming data.