Lower economic growth IS needed to reduce inflation
– Despite recent signs of decreasing inflation, Federal Reserve Chairman Jerome Powell stated on Thursday that the central bank will remain «resolute» in its commitment to its 2% target. Powell avoided committing to a precise policy course but offered no sign that he was leaning toward a push higher for interest rates. As Powell spoke, futures traders discounted any potential of a rate hike in November and reduced the likelihood of a move even in December.
– The pace of monthly rises has moderated, and the annual rate has slowed to 3.7% from more than 9% in June 2022, according to figures released in recent days, even if inflation is still significantly higher than the goal rate. «Incoming data over recent months show ongoing progress toward both of our dual mandate goals—maximum employment and stable prices,» he stated. Powell pointed out that a return to the target inflation rate of 2 percent «seems likely to require a period of below-trend growth and some further softening in labor market conditions.»
– Fed officials have been trying to balance out a supply-demand imbalance in the labor market in part by raising interest rates. Since March 2022, the Fed has increased interest rates 11 times for a total increase of 5.25 percentage points. The benchmark rate has reached its highest point in about 22 years after rising from a near-zero level. Powell did not commit about the direction of policy, explaining that, as happened before, any decisions about the duration of the current policy will be based on the totality of the incoming data, the evolving outlook, and the balance of risks.