2023-10-20 06:03:13
The president of the United States Federal Reserve (Fed), Jerome Powell, warned this Thursday of the risks to the economy in case of falling short or exceeding interest rates, while warning that the path to returning inflation to the 2% target will probably “take a while” and will be “bumpy”, because monetary policy is not yet restrictive enough.
“Doing too little could allow inflation above the target to become entrenched and, ultimately, require monetary policy to extract persistent inflation from the economy at a high cost to employment,” explained Powell, who also recalled that “doing too much could unnecessarily harm the economy.”
In a meeting organized by the Economic Club of New York, Powell argued that The Fed will proceed with caution and make its next decisions based on the data received, the future outlook and the balance of risks. In any case, the president of the issuing institute has stated that the tone of current monetary policy is not restrictive enough.
“I think the data suggests that the policy is not too restrictive at the moment,” he said, although he acknowledged that there may still be “substantial hardening” to manifest as a result of the delays with which the increases are expressed. of interest rates in the economy.
The president of the issuing institute has indicated that, although the short-term indicators of underlying inflation have been below 3% during the last three and six months, lInflation remains “too high.” He has also stressed that these short-term indices are often “volatile.”
In this sense, Powell has stated that it is still too early to know if these readings will mark a downward inflationary trend or, on the contrary, it will become entrenched, advocating “potholes” and delays in the process of ensuring price stability.
Likewise, Powell has also highlighted that financial conditions have tightened “considerably” in recent months, with long-term bond yields being an “important factor” in this tightening.
“We remain attentive to this evolution because persistent changes in financial conditions may have implications for the path of monetary policy,” he summarized.
Labor market and growth
During his speech, the Fed leader indicated that the labor market remains “tight”, but that it is “cooling”. He has also added that wage bill growth is moderating to levels compatible with 2% inflation.
Regarding gross domestic product (GDP), Powell has echoed that economists predict that the third quarter expansion will be “very strong”, and then be contained in the fourth quarter and next year.
However, the central banker has mentioned that geopolitical tensions are “high” and are an additional risk to growthespecially when the path to reaching 2% inflation will imply economic activity “below the historical average” and an additional softening of the labor market.
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