Just in case you didn’t believe him at the Fed’s annual Jackson Hole symposium, Chairman Jerome Powell reiterated the urgency and commitment necessary to combat inflation. Similarly, the European Central Bank has raised interest rates with the same goal in mind.
CNN Business/Martha C. White
‘We need to act right now’: Fed Chairman Powell vows to continue aggressive inflation fight
At a think tank conference Thursday, Federal Reserve Chairman Jerome Powell reiterated his pledge to stay the course on the central bank’s aggressive inflation-busting policy.
“The Fed has, and accepts, responsibility for price stability,” he said at the Cato Institute’s 40th Annual Monetary Conference. “We need to act right now — forthrightly, strongly.”
As he had at his uncharacteristically brief speech at the Fed’s annual Jackson Hole symposium last month, Powell reaffirmed a commitment to a hawkish policy stance. The Fed chair is trying to temper expectations among consumers and businesses that prices would continue to rise, which could trigger changes in spending, earning and investing habits that could be hard to undo.
“The public had really come to think of higher inflation as the norm” in the 1970s, Chair Powell said, following what he called “failed attempts” to rein in soaring prices — a failure he attributed to the Fed’s unwillingness to keep monetary policy tight enough for long enough.
Powell’s concern that people could habitually come to expect inflation was echoed by Fed vice chair Lael Brainard at a banking policy conference speech in New York on Wednesday. “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.
Investors overwhelmingly expect a 75 basis-point hike at the Fed’s upcoming policy-setting meeting later this month as they digest Powell’s remarks, his last comments before the quiet period ahead of the meeting. The tenor suggested to market participants that the Fed won’t stop raising rates even if the Consumer Price Index and Producer Price Index, two key inflation metrics that will be released next week, come in 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,” said Keith Buchanan, portfolio manager at Globalt Investments. “He went to pretty extensive lengths to dispel assumptions of any pivot coming forward soon.”
The Fed was roundly criticized for underestimating the breadth and duration of the current bout of inflation, and officials want to communicate that they’ve learned their lesson, said Brad Conger, deputy chief investment officer at Hirtle Callaghan. “They’re at pains to say we’re not going to get head-faked by an ephemeral trend,” he said.
Fox Business/Kristen Altus
Ex-White House economic advisor claims Biden admin ‘oversold how fiscally responsible they are
After one former U.S. Treasury Secretary sounded alarms over Americans seeing soaring unemployment rates this month, an economist is joining the calls that the economy is “not looking good” under the Biden administration.
“Inflating away the debt is just a tax right on the population,” former White House Council of Economics Advisors Acting Chair Tomas Philipson told FOX Business’ Dagen McDowell Thursday. “In general, I think the administration have [sic] oversold how fiscally responsible they are.”
In an interview on “Mornings with Maria,” Philipson analyzed the current state of the economy and criticized President Biden’s policies and the Federal Reserve’s slow inflation reaction brewing another “crisis.”
“They wanted to go out with Build Back Better with $5 trillion and they couldn’t get it, and then they argue because their COVID programs are expiring that they’re fighting this inflation with deficit reduction. So I think it’s very misleading,” Philipson explained. “The economic messaging out of the White House has been extremely hard to understand for economists.”
Following former Treasury Sec. Larry Summers’ prediction that unemployment will hit 6% in September, Philipson argued the Fed’s next rate decision in two weeks will depend on that data and the Consumer Price Index (CPI) numbers.
Philipson further called out the Fed for tackling inflation at a “very, very slow rate.”
European Central Bank raises rates by 75 basis points to tackle soaring inflation
The European Central Bank on Thursday announced a 75 basis point interest rate rise, taking its benchmark deposit rate to 0.75%.
“This major step frontloads the transition from the prevailing highly accommodative level of policy rates towards levels that will ensure the timely return of inflation to the ECB’s 2% medium-term target,” it said in a statement.
The central bank added it “expects to raise interest rates further, because inflation remains far too high and is likely to stay above target for an extended period.”
It revised up its inflation expectations, forecasting an average 8.1% in 2022, 5.5% in 2023 and 2.3% in 2024.
Markets had largely priced in a 75 basis point hike, with the euro remaining flat against the British pound and rising slightly against the dollar to 1.0005. On Monday the euro dipped below 99 cents for the first time in 20 years.
The ECB move follows a hike from -0.5% to zero at its July meeting. The central bank, which sets monetary policy for the 19 euro-using nations, had kept rates in negative territory since 2014 in a bid to spur spending and combat low inflation.
It now faces a very different problem, with consumer prices in the euro zone rising by 9.1% in August, setting a ninth consecutive record.