At the start of the Federal Reserve Open Market Committee meeting, there is consensus that another increase of 0.75 percent in the federal funds interest rate will be announced. The best evidence in support of this conclusion can be found in the speech by central bank Chairman Jerome Powell, at the last in person symposium on economic policy, held in Jackson Hole, Wyoming on August 26. https://www.federalreserve.gov/newsevents/speech/powell20220826a.htm

The speech was deliberately shorter, narrower, and more direct. Chairman Powell said, “restoring price stability” requires maintaining for some time higher interest rates. Therefore, to bring down inflation also requires slower growth and softening labor market conditions. This “will also bring some pain to households and businesses,” but these are “the unfortunate costs of reducing inflation,” against the “far greater pain” caused by “a failure to restore price stability.”

To explain this decision, Chairman Powell invoked “three important lessons” drawn from experience, quoting his predecessors. First, the former Chairman Ben Bernanke was quoted on the “unconditional” central bank responsibility “to deliver price stability.” Second, former Chairman Paul Volcker was quoted on the need to “break the grip of inflationary expectations.” Last, “keep at it until the job is done,” paraphrasing the title of former Chairman Paul Volcker’s 2018 memoir “Keeping at it.”


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