Mr. Powell did not say what pace lies ahead, suggesting that Fed officials will watch incoming data as they decide whether to make a third straight “unusually” large three-quarter-point rate increase at their Sept. 20-21 meeting. He reiterated that the Fed was likely to slow its increases “at some point,” but he also said central bankers had more work to do when it came to constraining the economy and bringing inflation back under control.
What is inflation? Inflation is a loss of purchasing power over time, meaning your dollar will not go as far tomorrow as it did today. It is typically expressed as the annual change in prices for everyday goods and services such as food, furniture, apparel, transportation and toys.
Is inflation bad? It depends on the circumstances. Fast price increases spell trouble, but moderate price gains can lead to higher wages and job growth.
How does inflation affect the poor? Inflation can be especially hard to shoulder for poor households because they spend a bigger chunk of their budgets on necessities like food, housing and gas.
Can inflation affect the stock market? Rapid inflation typically spells trouble for stocks. Financial assets in general have historically fared badly during inflation booms, while tangible assets like houses have held their value better.
The current level of interest rates is “not a place to stop or pause,” the Fed chair said, adding that rates will probably need to stay high enough to meaningfully weigh on the economy for “some time,” and that the “historical record cautions strongly against prematurely loosening policy.”
The upshot was clear: The Fed is nowhere near declaring victory. While Mr. Powell greeted a slowdown in inflation in July as good news, he said it was not enough to determine that the Fed’s mission was on its way to being accomplished.
“Lower inflation readings for July are welcome, 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,” he said, referring to the policy-setting Federal Open Market Committee.
The Fed’s preferred inflation gauge, the Personal Consumption Expenditures index, climbed 6.3 percent over the year through July, a slowdown from the prior month but still far above the 2 percent average that the Fed shoots for. Price increases are showing hopeful signs of waning for some types of goods, but much of the recent slowdown has been driven by a pullback in fuel prices, which are volatile.
“It’s really premature to even think that inflation has peaked,” Loretta Mester, president of the Federal Reserve Bank of Cleveland, said during an interview on Yahoo Finance on Friday. “The July inflation report had some positives, it was welcome news, but it was based on, basically, a downturn in energy prices, and we know they’re volatile.”
Article source: https://www.nytimes.com/2022/08/26/business/economy/jerome-powell-inflation.html
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