(Washington) Time is running out, in the face of inflation, Fed Chairman Jerome Powell warned Thursday, justifying the need to act firmly, in order to avoid a repetition of the 1970s and 1980s, with their inflationary spiral and drastic measures to curb it
Posted at 11:46 a.m.
“We must act firmly as we have done, and we must persevere until the job is done. To avoid this,” the chairman of the US Federal Reserve (Fed) said at the Cato Institute’s annual monetary conference.
“We think we can avoid the kind of very high social costs” that the Fed had, at the time, “had to impose to bring down inflation and establish a long period of price stability”, he said. -he adds.
The United States experienced a period of very high inflation in the 1970s, and until the beginning of the 1980s. The rise in prices had been close to 15% over one year.
Jerome Powell evoked “what Paul Volcker (president of the Fed from 1979 to 1987, editor’s note) and the Fed did to finally control inflation after several unsuccessful attempts”, stressing that “the public had come to consider inflation higher as the norm and expect it to continue”.
Such inflation expectations maintain the inflationary spiral, making the fight against this rise in prices even more painful.
“Time is running out,” warned Jerome Powell again.
He also pointed out that “history warns against premature easing” of monetary policy, signaling that the Fed will continue to tighten policy to slow consumption, despite fears of recession.
Tight job market
The US central bank has raised its key rates four times since March, and they are now in a range of 2.25 to 2.50%.
It should raise them again on September 21, at its next meeting. Another sharp rise, of three-quarters of a percentage point, is on the table.
The European Central Bank (ECB) also acted forcefully on Thursday, raising its rates by three-quarters of a point, unheard of on this side of the Atlantic.
In the United States, inflation slowed in July, after hitting a 40-year high in June. However, it remains very high, at 8.5% according to the CPI index and 6.3% according to the PCE index, the one followed by the Fed.
CPI inflation for August will be released next Tuesday.
The Fed’s objective is to bring inflation down to 2%, a level considered healthy for the economy.
“We’re hoping for a period of below-trend (economic) growth, which will bring the labor market back into better balance, and then bring wages back to levels more consistent with 2% inflation over time,” summed up the chairman of the Fed.
Because the job market remains very tight, with a significant shortage of workers, contributing to the increase in prices and wages.
“The pandemic’s labor supply shock to us has been large and unexpected, and unfortunately persistent,” said Jerome Powell.