US households to feel 'some pain' as Fed fights inflation, Jerome Powell says

Federal Reserve chairman says history suggests central bank should not ease its monetary policy

Federal Reserve chairman Jerome Powell's remarks are to be livestreamed from the annual Jackson Hole Economic Policy Symposium. Reuters

Philadelphia Federal Reserve Bank President Patrick Harker, left, speaks with CNBC's Steve Liesman in an interview ahead of the annual Federal Reserve Bank of Kansas City's Economic Policy Symposium, at Jackson Hole, Wyoming. Reuters

Ash Hermanowski, food access and operations manager of the Jackson Cupboard in Jackson Hole, hands out meals from a garage after the nonprofit's location flooded. AP

High inflation, soaring home prices and financial inequality are all too visible in the idyllic mountain setting where the economic conference takes place. AP

Esther George, president and chief executive officer of the Federal Reserve Bank of Kansas City, gives an interview at the Jackson Hole Economic Symposium Bloomberg

Pierre-Olivier Gourinchas, professor of economics at the University of California-Berkeley, at the 2019 summit. Reuters

Janet Yellen, at the time chairwoman of board of governors of the Federal Reserve System and Mario Draghi, at the time president of the European Central Bank, at Jackson Hole in 2017. Bloomberg

Mark Carney, left, at the time governor of the Bank of England, and Federal Reserve chairman Jerome Powell, at the 2019 Jackson Hole gathering. AP 

Former US Federal Reserve chairman Ben Bernanke, right, and Jean-Claude Trichet, former president of the European Central Bank, at a previous summit. AP

Former Federal Reserve vice chairman Richard Clarida at the 2019 Jackson Hole symposium. Reuters

With upscale ski resorts, campsites and ranches Jackson Hole is popular with outdoor enthusiasts. Bloomberg

Federal Reserve Chairman Jerome Powell said on Friday that the US economy would need a tight monetary policy “for some time” to beat record-high inflation, and that American households and businesses will feel “some pain”.

Speaking at the Jackson Hole Symposium in the state of Wyoming, Mr Powell said history suggests it is unwise to prematurely loosen monetary policy. Cooling US inflation will require a “sustained period of below-trend growth”, he said.

“Moreover, there will very likely be some softening of the labour market while higher interest rates, slower growth and softer labour market conditions will bring down inflation but will also bring some pain to households and businesses,” Mr Powell said.

“These are the unfortunate costs of reducing inflation. But a failure to restore price stability would mean far greater pain.”

People should not expect the Fed to ease its strategy quickly, Mr Powell said, giving no indication for when the central bank might dial it back.

“The historical record cautions strongly against prematurely loosening policy. We must keep at it until the job is done,” he said.

Mr Powell also did not hint at what the Fed might do in its next meeting in September, though analysts believe it could raise interest rates by another 50 to 75 basis points.

The decision of how much to raise interest rates “will depend on the totality of the incoming data and the evolving outlook”, Mr Powell said.

The US economy is “clearly slowing” due to the Fed's aggressive interest rates, he said, noting that statistics show “there is strong underlying momentum”. He added, however, that the labour market is “clearly out of balance”, with open jobs far exceeding the supply of available workers.

The Fed chairman has repeatedly said his aim is to achieve a soft landing by slowing the economy without bringing on a recession. The Fed in recent months has enacted the fastest pace of interest rate increases in decades to bring down inflation.

Those interest rate increases have made taking out mortgages and other loans more expensive.

Fed officials expect interest rates to increase to 3.4 per cent by the end of 2022 and 3.8 per cent in 2023.