A recent easing in the rate of inflation hasn’t been enough to convince the Federal Reserve to reverse course on raising interest rates, with the Federal Open Market Committee likely to pursue a “restrictive policy stance for some time,” Fed Chair Jerome Powell said at the Jackson Hole, Wyoming, monetary policy conference today. While higher interest rates and a slowdown in hiring will bring “some pain” to households and businesses, “a failure to restore price stability would mean far greater pain,” he said.
The FOMC approved a 75 basis point increase in the federal funds rate during its meeting in July—the fourth increase so far this year—as part of its long-term goal to maintain inflation at 2%. Powell didn’t indicate whether he believed another 75 point increase was necessary during the committee’s next meeting in September but said the historical record “cautions strongly against prematurely loosening policy.” He acknowledged that the rate of inflation had dipped slightly in July, but “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.”
“In current circumstances, with inflation running far above 2% and the labor market extremely tight, estimates of longer-run neutral are not a place to stop or pause,” he said.