August 29, 2022 — Powell Speaks at Jackson Hole; Rates Still to Rise


Citing the inflation experience 40 years ago, Fed Chair Powell spoke of the Fed’s intentions at the annual Jackson Hole economic conference. There are three lessons to heed: The Fed is responsible for managing inflation, expectations are critical, and they must keep at it until the job is done.  The Fed’s failure to act forcefully in the 1970’s led to extreme rate hikes in the 1980’s which led to recession.

Powell doesn’t believe a recession is inevitable, but managing expectations is critical. The focus is on inflation because it’s high and ”the longer the current bout of high inflation continues, the greater that expectations of higher inflation will become entrenched.” Powell believes fighting inflation is more important than supporting economic growth.

The US economy has had consecutive quarters of negative GDP growth which is usually seen as recessionary, but Powell believes the economy as strong but slowing.  “Price stability is the responsibility of the Federal Reserve and serves as the bedrock of our economy,” Powell said. “Without price stability, the economy does not work for anyone.”

Expectations are for a half-point and a three-quarter point increase in September, with the likelihood of a 0.75 percent rise at 55 percent. Powell said the decision will depend on incoming data and the evolving outlook. As monetary policy tightens more, it will then become appropriate to slow the pace of increases.