According to the website of Newsweek on October 19th, Federal Reserve Chairman Jerome Powell said on the same day that while consumer spending and a resilient job market are driving strong economic performance in the United States, inflation levels are still too high.
During his speech at the New York Economic Club, Powell said that higher interest rates set by policymakers are infiltrating specific sectors of the economy, such as housing, and the central bank has made some progress in combating soaring prices.
He said that there have been some encouraging trends in inflation this summer, with inflation consistently below 3% for the past three to six months, closer to the Federal Reserve's 2% target.
Powell said, "These short-term measures are usually unstable. Regardless, inflation is still too high, and a few months of good data is just the beginning of building trust and convincing people that inflation is continuously declining towards our goals
Powell also focused on conveying the message that interest rates are likely to remain high for a longer period of time.
He said, "The policy stance is restrictive, which means that strict policies are putting downward pressure on economic activity and inflation. Considering the rapid pace of tightening, there may still be significant tightening in the future
Starting from March 2022, Federal Reserve policymakers have significantly raised interest rates to control historic inflation levels. In June of that year, personal consumption expenditure - an inflation indicator closely monitored by the Federal Reserve - reached a peak of 7.1%. By September of this year, this indicator had dropped to 3.5%, and after excluding the volatile food and energy sectors, core personal consumption expenditure had dropped to 3.7% from its peak of 5.6% in February last year.
The rise in interest rates has affected the entire economy, increasing the borrowing costs of housing, cars, and commercial investments. But recent indicators also indicate that Americans are still spending, despite facing rising interest rates and soaring prices.
Powell said that after a major interest rate hike in 2022, the Federal Reserve has taken a more comprehensive approach this year, allowing interest rate hikes to play a role in the economy. The focus now is still on reducing inflation to set targets.
He said, "You know, we acted very quickly in 2022 to achieve the goals we need to achieve, and now we are making cautious decisions. The current problem is to try to reach a sufficiently strict policy stance to lower inflation to 2% over time
According to the report, although the economy has remained flexible, there are signs that the labor market is cooling down, and job vacancies are only slightly higher than before the COVID-19 epidemic.
Powell said, "The wage growth indicators show that over time, the inflation rate will gradually decrease, reaching a level of 2%
He seems happy because the measures taken by decision-makers have slowed inflation, but have not caused much damage to the labor market and economic activity.
Powell said, "This year's economic growth has been surprisingly strong, as we can see from the strong retail data released earlier this week
But he also said that achieving the 2% inflation target may be painful.
He said, "Records indicate that achieving the 2% inflation target may require a period of below-average growth and further weakness in the labor market
Powell said that decision-makers will weigh the risks and ensure that the path to achieving the 2% inflation target is unchangeable. He said they do not want to take insufficient action to sustain high inflation for a longer period of time. This may force the Federal Reserve to adopt more proactive policy measures, which may cause losses to the economy and employment.
He said, "My colleagues and I are committed to reaching a policy stance that is strict enough to continuously reduce inflation to 2% over time and maintain this strict policy until we are confident that inflation is on the way to achieving the set goals
He said he noticed that excessive action now may cause unnecessary harm to the economy. In the future, the Federal Reserve will focus on balancing risks and observing the economic response.
He said, "Considering the uncertainty and risks involved, as well as the level of progress we have reached, the Federal Reserve is cautiously advancing