The chairman of the Federal Reserve delivered a stark message today
on the long fight ahead against inflation. Powell warned that more
interest rate hikes are coming and said they're going to take a toll.
Stocks dropped sharply after his comments. William Branham has the
details. That's right. I'm not with inflation still at a 40 year
High Chairman Powell today pledged that the central bank is not backing
down on its campaign to curb inflation, spoke at the Fed's annual
economic symposium.
In Jackson Hole, Wyoming today.
And for a Fed chairman, he was pretty direct.
While higher interest rates, slower growth and software labor market
conditions will bring down inflation.
They will also bring some pain to households and businesses.
These are the unfortunate costs of reducing inflation.
But a failure to restore price stability would mean for greater pain.
Those comments clearly rattled the markets, triggering a sharp selloff.
The Dow Jones industrial average plunged 1008 points to close at
32,000 to 83. That's down 3%, the NASDAQ fell 497 points about 4%
and the S and P 500 shed. 141. That's 3% to help put this all into
perspective. I'm joined again by David Wessel. He's the director
of the Hutchins Center on fiscal and monetary policy.
At the Brookings Institution, David Great to have you back on the
news hour.
Pretty strong message from Powell. Today. We are not going to stop
this fight, meaning interest rates are not coming down anytime soon.
Were you surprised at what he had to say today? Um, I wasn't surprised
by the basic message, but the tone was very sharp. The chairman said.
He was going to be direct and and he was he is speech was shorter
than the ones is given in the past.
And I think he was trying to send a very strong signal that fighting
inflation is their top priority. It means that unemployment probably
will get worse and that is not going to shake them from their resolve.
I want to get to that in a moment. But the sharp selloff that we
saw on the market today indicates that the market didn't seem to
think that this is the tack that Powell was going to take.
It's always hard to explain why the market does on a given day and
who knows Monday the market maybe up, but there has been a disconnect
between the market and the Fed. The market or many people in the
market have been thinking that the Fed is basically winning the war
the economy slowing. They're going to raise rates again this year,
but by next year they'll be cutting them and palace sent a very strong
message. We are not going to be cutting rates next year.
We are going to raise rates and we're going to keep them high until
we have really wrung. Inflation out of the economy may be self evident
to economists out there, but
Walk us through the pain of what That could mean. Powell mentioned
that word a few times, which I know is always little hair raising.
When a Fed chief mentions that what does this mean for average consumers?
Well, I think you have to give Jay Powell some credit. He's not pretending
This is all going to be easy. And and that's sometimes sometimes
some politicians and central bankers do pretend
What are you saying is we're going to raise interest rates. We know
that that will make it harder for businesses and consumers to borrow.
They'll spend less and if they spend less, some people are going
to lose their jobs. That's basically what he's saying. And he's saying
I know that sounds bad and he didn't say this, but maybe we should
have acted earlier.
Remember. A year ago, he gave his speech telling us why we didn't
have to worry about inflation. But his cases and the common central
banker cases if we take a little pain now we can avoid more pain
down the road.
Meaning inflation. If left unchecked, gets worse and or becomes locked
in place. And then the Fed will raise interest rates a lot as it
did in the early eighties and will have a really deep recession.
The fattest, hoping inflation is has easily little bit actually the
measure that the Fed watches did not increase at all from June to
July, which is a good sign, and he mentioned that, But he says it's
not enough. The Fed is hoping that inflation will come down gradually
as the supply chains work there.
The way we work out the kinks in the supply chains, and then they
will squelch demand enough so that we can have what they like to
call a soft landing. That is the economy of slow. Unemployment will
go up a little bit, but it won't be a recession. But he's not promising
that and I don't think he should promise it.
You mentioned this? We've seen some decent inflation news and some
other encouraging growth on durable goods and job claims. For someone
who's again not terribly well versed in the economy. More broadly,
Where is this economy? Are we in trouble or things looking up? Things
are really confusing. One economist diagnosis. If you're not a little
confused, you're not paying attention. The job market has been extraordinarily
strong hundreds of thousands of new jobs each month, the unemployment
rate
It is still very low and we have this high inflation rate.
And there are some signs that the economy is slowing. According to
the most recent government estimates the economy actually contracted
in the first couple of quarters. But basically what's happening is
the economy ran is running a little bit out of steam, and we expect
that job growth will not continue. We expect that unemployment will
go up. We expect that that means that consumers, some of whom are
squeezed because their wages aren't going up as much as prices are
going up, will spend less and that will gradually slow the economy.
The Fed chair talked about below trend growth. That means growth
so slow and unemployment goes up, but not so slow that we have a
recession. So this fall is the next Fed meeting. Do you expect?
Half inch quarter point f inch
half a point quarter. I don't really know. Um, you know, there's
a lot of speculation about whether they'll raise rates another half
percentage point or three quarters of a percentage point. The markets
today concluded based on PayPal's adverbs that three quarters is
more likely, but we'll get some more inflation numbers and some more
jobs numbers between now and the September meeting. What really matters
is how far will they take rates up?
And both the Fed and financial markets are expecting another full
percentage point of rate increases before the end of 2022. The disagreement
is what happens after that.