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Article informationAuthor, Fara MasoudRole, Business Correspondent
2 hours ago
US Federal Reserve Chairman Jerome Powell said the bank will continue to raise interest rates for “as long as it is appropriate” while inflation remains “very high”.
And Powell, at the annual meeting of US central bankers in Jackson Hole, Wyoming, said the pace of price increases has slowed from its peak.
However, inflation is still above the Fed’s target of 2%.
Powell predicted that interest rates could rise further and stay higher for longer.
Inflation in the United States reached 3.2% in the year to July, while the main interest rate reached 5.25% – the highest in 22 years – and it comes after 11 consecutive hikes in interest rates since early 2022.
“Although inflation has come off its peak – a welcome development – it is still very high,” Powell added.
He indicated the possibility of raising interest rates more if necessary, in addition to continuing to adopt a monetary policy at a restricted level until ensuring that inflation is heading stably towards the set target.
Powell said the Fed will “act with caution,” citing the effects of Russia’s ongoing invasion of Ukraine as one of the factors driving up prices globally.
He also said that food and energy prices “remain volatile”, although the headline inflation rate has declined from a high of 9.1% last year.
“Unfortunately, a more resilient economy than expected suggests that higher interest rates may be needed, which may or will be necessary to smooth things out enough to reach the 2% inflation target,” said Cary Leahy, an economist at Columbia University.
Powell had confirmed that “the process of reducing inflation to 2% still needs a long time.”
He added that the Fed intends to “continue to adopt a policy at a restricted level”, comments that were widely expected by market analysts.
“This is a reaffirmation that the Fed is going to take a very slow and cautious approach,” said Michael Green, chief investment strategist at Symphy.
Powell pointed to the housing market, which has not been sufficiently stable.
“After decelerating sharply over the past 18 months, the housing sector is showing signs of regaining momentum,” he added, “and this may warrant further tightening of monetary policy.”
He also noted that the Fed needs flexibility from the labor market before interest rates start to fall, as wage growth continues, as employers offer higher wages to attract employees in a shrinking labor market.
In theory, higher wages lead to higher inflation, thus prolonging the need for higher interest rates.
2023-08-26 08:44:17
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