By Christopher Rogaber – AP Economics Writer
JACKSON HOLE, Wyoming (AFP) – When Federal Reserve Chairman Jerome Powell delivers what will be his most scrutinized speech of the year Friday, investors and economists will turn over his notes for any clues about the How quickly the Fed may continue to raise its key interest rate – And for how long.
With inflation hovering Close to a four-decade high – Roughly 9% – Powell is likely to confirm that the Fed is determined to bring it down to its 2% target, no matter what it takes. An interest rate hike by the Federal Reserve may defeat inflation in time. But there are concerns that it may cause a stagnation in the process.
Powell’s statements will start with the Fed’s statements Annual Economic Symposium in Jackson HoleIt is the first time the central bank governors’ conference has been held in person since 2019, after becoming virtual for two years during the COVID-19 pandemic.
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Since March, the Fed has implemented Fastest rate of increase in decades To combat inflation, which has penalized families with rising costs for food, gas, rent and other necessities. The central bank raised its benchmark interest rate by a full two percentage points in just four meetings, to a range of 2.25% to 2.5%.
However, the central bank finds itself at a turning point. at a press conference After the last policy meeting in late JulyIn June, Powell suggested that the Fed might decide to slow rate hikes after it imposed two consecutive three-quarters-point increases – historically large moves – in June and July.
He also said the Fed’s aggressive steps have raised the key short-term interest rate to a point where it neither stimulates nor slows growth. The benchmark interest rate was held near zero from early in the pandemic until March as the Federal Reserve sought to strengthen the economy.
Fed watchers are hoping Powell will send some clues on Friday about the size of the rate hike the central bank will announce at its next meeting in late September or how long policy makers will keep interest rates high. They also hope to learn more about the factors that policymakers will take into account in the coming months to determine when borrowing rates have risen sufficiently.
“He has to take some kind of uncertainty about the outlook and try to explain what they’re looking at to make their policy decisions,” said William English, a professor at Yale School of Management and former chief economist at the Federal Reserve.
How low, for example, must inflation be before Powell and his colleagues suspend their interest rate increases? What will the Fed do if unemployment, now at its lowest level in half a century, begins to rise? If the economy slips into recession, many investors believe the Fed may take a pivot and cut interest rates again. But if inflation has not yet been brought under control, that is unlikely.
In June, Fed policymakers indicated that they expected the key rate to end in 2022 in the range of 3.25% to 3.5% and then rise next year to between 3.75% and 4%. If rates reach their expected level at the end of this year, they will be at their highest point since 2008. Powell is betting he can design a high-risk outcome: slow the economy enough to ease inflation pressures but not as much as the effects recession.
His task is complicated by a blurry picture of the economy: The government said Thursday The economy contracted at an annual rate of 0.6%. In the period from April to June, the second consecutive quarter of downturn. After employers Recruitment is still fast, the number of people seeking unemployment assistance, a layoff procedure, Still relatively low.
At the same time, inflation remains overwhelmingly high, although it has shown some signs of abating, particularly in the form of lower gas prices.
“The data is very confusing,” English said. “It’s just hard to know exactly what the situation is.”
At its July meeting, Fed policymakers expressed two conflicting concerns that highlighted their delicate mission.
according to to minutes from that meetingThe officials – whose names have not been released – have prioritized the fight against inflation. However, some officials said there is a risk that the Fed will raise borrowing costs too much, potentially triggering a recession. If inflation drops closer to the Fed’s 2% target, and the economy weakens further, it may become difficult to reconcile these divergent views.
After the Federal Reserve meeting last month, Powell told reporters that the size of the next rate hike “will depend on the data we get between now and then.”
He also said that as interest rates rise, “it will likely become appropriate to slow the pace of increases” and assess how the Fed’s actions will affect the economy. These comments helped spark a stock market rally as many investors interpreted them to mean that the Federal Reserve would be less aggressive in the coming months.
Since then, though, many Federal Reserve officials have opposed any idea that they are about to ease their fight against inflation.
Tom Barkin, president of the Federal Reserve Bank of Richmond, told CNBC this month, “I would like to see a period of sustained inflation under control, and until we do I think we will just have to keep moving rates higher.”
On Friday, Powell may also address how the pandemic has caused a host of supply problems for the economy and what that could mean for Fed policy. The COVID-19 shutdown has led to a shortage of semiconductors and other components as well as workers. Many supply shortages still exist. Russia’s invasion of Ukraine also cut off the supply of oil and agricultural goods, driving up global costs for gas and food.
These “supply shocks” pose a particular challenge to the Fed because its policy tools involve raising or lowering interest rates to stimulate or slow demand. Traditionally, the Fed ignores the impact of supply shocks on inflation assuming that they will be temporary.
In fact, at last year’s Jackson Hole symposium, Powell mentioned five reasons why he believes inflation will be “temporary.” Yet it persisted instead.
As a result, some economists believe Powell may be safer this time around and spend much of his speech revising the economic outlook.
“This is not the time to roll out a big framework,” said Vincent Reinhart, chief economist at Dreyfus & Mellon and a former Federal Reserve employee. “They’re trying to figure out how to keep tightening and do something the Fed hasn’t had to do in 40 years.”
Reinhart said Powell should “repeat the facts, and get out of there.”
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