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The Federal Reserve Chair Jerome Powell’s “short” and “direct” message from the Jackson Hole symposium was that a Fed pivot is not coming and interest rates will remain elevated for longer than markets expect.
“Restoring price stability will likely require maintaining a restrictive policy stance for some time,” Powell said at the Kansas City Fed’s annual policy forum in Jackson Hole, Wyoming. “The historical record cautions strongly against prematurely loosening policy.”
Powell did not take the 75-basis-point hike off the table at the September meeting, reiterating that a lot will depend on the macro data released in the next three weeks.
“Another unusually large increase could be appropriate at our next meeting,” Powell said. “Our decision at the September meeting will depend on the totality of the incoming data and the evolving outlook.”
The Fed plans to act aggressively now, so inflation does not become entrenched, which is a much costlier scenario to fix.
“The successful Volcker disinflation in the early 1980s followed multiple failed attempts to lower inflation over the previous 15 years. A lengthy period of very restrictive monetary policy was ultimately needed to stem the high inflation and start the process of getting inflation down to the low and stable levels that were the norm until the spring of last year,” Powell noted. “Our aim is to avoid that outcome by acting with resolve now.”
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