US Federal Reserve (Fed) Chairman Jerome Powell spoke on monetary policy and price stability at the Jackson Hole Economic Policy Symposium hosted by the Kansas City Fed.

In his speech at the symposium, the theme of which is “Structural Changes in the Global Economy” this year, Powell noted that he will give the message that they will “work to reduce inflation to the 2 percent target” this year, as they did last year.

Recalling that they significantly tightened their monetary policy last year, Powell said that although inflation has dropped from its peak, it is still very high.

Pointing out that they are ready to increase interest rates further if appropriate, Powell said, “We intend to keep our policy at a restrictive level until we are confident that inflation will move towards our target in a sustainable manner.” he said.

Powell explained that the drop in headline inflation is good news, but that food and energy prices are affected by global factors that remain volatile and can give misleading signals about where inflation is headed.

Pointing out that core consumer inflation is still high on an annual basis, Powell pointed out that there is still a long way to go in order to return to price stability.

“Growth above trend may require further tightening”

Referring to the goods, housing services and non-residential services components of consumer inflation, Powell reported that core goods inflation, especially durable goods such as vehicles, decreased due to the effect of both tightening monetary policy and resolving supply-demand imbalances.

Pointing out that housing sector inflation caused a decrease in housing starts, sales and price increases by reacting to monetary policy changes, Powell said that non-residential services inflation, which constitutes an important part of core inflation, also showed a slight decline, but that more progress should be made.

Noting that the economic outlook shows that the easing of the distortions due to the COVID-19 epidemic will continue to reduce inflation, but restrictive monetary policy will play a larger role, Powell said, “A sustained pullback of inflation to 2 percent will result in a period of below-trend economic growth as well as a labor force. It is expected to require some softening in market conditions.” used the phrase.

Stating that the effect of the restrictive monetary policy is clearly seen in higher real returns and tightened lending standards, Powell underlined that this contributed to the slowdown in economic growth.

Stressing that they are alert to signs that the economy may not be cooling as expected, Powell said, “Additional evidence that growth is consistently above trend could put the progress in inflation at risk and require further tightening of monetary policy.” he said.

Noting that they expect the rebalancing in the labor market to continue, Powell said that evidence that the tightness in the labor market is no longer easing may require a monetary policy response.

“Doing too much can also cause unnecessary damage to the economy”

Powell stated that they think that the current policy stance is restrictive and creates downward pressure on economic activity, hiring and inflation, and stated that there is uncertainty about the exact level of monetary policy restrictions due to their inability to precisely determine the neutral interest rate.

Pointing out that current uncertainties make it difficult for the Fed to balance the risk of tightening monetary policy too much or too little, Powell said: “Doing too little can cause inflation to stabilize above target and ultimately require monetary policy to drive more persistent inflation out of the economy at a high cost to employment. Doing too much can also unnecessarily harm the economy.” said.

Emphasizing that in future meetings, they will evaluate based on the integrity of the data, the evolving outlook and risks, and concluded his words as follows:

“Based on this assessment, we will proceed cautiously in deciding whether to tighten further or keep the policy rate steady and wait for future data. We will need price stability to reach a period where strong labor market conditions are sustainable for the benefit of all. We will continue to do so until the job is done. “

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