Stocks plummet today as Fed Chairman says U.S. central bank’s commitment to fight inflation with higher interest rates is imminent. Markets were headed lower by the Nasdaq, which fell 2.6% in midday trading. Both indices were headed for their worst day since June as the Dow Jones Industrial Average lost more than 600 points and the S&P 500 lost over 2.1%.
Jerome Powell, the chairman of the Federal Reserve, cautioned that US households will experience “some pain” as a result of the central bank’s efforts to control inflation. Powell warned that lowering inflation would not be quick or simple in his opening remarks at the Federal Reserve’s annual Jackson Hole Economic Symposium on Friday morning, adding that the task “requires using our tools forcefully to bring demand and supply into better balance.”
According to Powell, doing so would probably lead to a period of weaker US economic growth and a softer labor market. While slower growth, higher interest rates, and a weaker labor market will help to reduce inflation, Powell warned that both households and companies will suffer as a result. In his yearly policy speech in Jackson Hole, Wyoming, Powell added that higher interest rates are expected to last “for some time.” The historical evidence strongly advises against easing policy too soon.
The comments come amid indications that inflation may have peaked but is not yet clearly declining. Powell stated that a month or two of data will not have an impact on the Fed. Additionally Powell commented, “We are moving our policy stance purposefully to a level that will be sufficiently restrictive to return inflation to 2%.” Looking into the future, the central bank leader added that “restoring price stability will likely require maintaining a restrictive policy stance for some time. The historical record cautions strongly against prematurely loosening policy.” “Price stability is the responsibility of the Federal Reserve and serves as the bedrock of our economy.” “Without price stability, the economy does not work for anyone.”
The consumer price index and the personal consumption expenditures price index, two carefully monitored indicators, showed minimal change in prices in July, partly because of a sharp decline in energy prices. Other sectors of the economy are slowing down at the same time. The housing market specifically is fast contracting, and experts predict that the enormous job boom of the previous 18 months will eventually slow.
Powell issued a warning, noting that the Fed’s attention goes beyond a month or two of data and that it will keep moving forward until inflation falls close to its 2% long-term objective.
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