“We need to act tough on inflation now,” says Fed chairman

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Federal Reserve Chairman Jerome Powell reinforced the monetary authority’s focus on controlling prices in the world’s largest economy and returning inflation to the 2% target.

“We need to act now firmly, strongly as we have been doing and we need to keep up this work on controlling inflation until they are done,” he said in a debate at the Cato Institute’s 40th Annual Monetary Conference.

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In this sense, Powell said that he sees the possibility of avoiding the “very high” social costs of the past that the management of Paul Volcker and the Fed had in the past to put into play to lower inflation and prepare for a long period of price stability. .

According to Powell, the goal at the Jackson Hole symposium was to make a speech focused on inflation, more direct and shorter.

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“The message really was that the Fed has a 2% inflation responsibility over time,” he said.

The Fed chairman warned that the longer inflation stays above target, the greater the risk that high prices will become the new normal in the world’s largest economy, making it more expensive to bring them down.

“History strongly warns against the premature easing of monetary policy”, amended Powell, adding that inflation expectations are currently well anchored in the long term.

Monitoring inflation expectations

The chairman of the Federal Reserve warned about the need to monitor inflation expectations despite believing that they are well anchored in the long term.

That’s because if they go up, he explained, they can make the job of controlling high prices in the United States more difficult.

“Inflation expectations are really important and need to be carefully monitored, because if they go up, they can make the job of getting back to price stability a lot more difficult,” he said, commenting on lessons learned from his administration at the Fed and that he also were mentioned in his speech at Jackson Hole.

Powell also highlighted that high inflation is not just an American problem and that the main question in the current scenario is whether prices will assume a structurally higher level.

“Across the world, many nations are experiencing the first rise in inflation in 40 years,” he said, stressing that rising prices are a global problem.

“And the question really is, is this going to be something temporary that is actually related to the pandemic in some way? Or is there really something more structural and persistent going on?” Powell added.

According to him, it is still not possible to know whether the world is heading down a road of greater and more frequent supply shocks, for different reasons, but that this would have “critical and difficult” implications for the conduct of economic and monetary policies.

“The issue is that we are always doing monetary policy under high uncertainty about the structure of the economy and the way forward, which makes our work challenging,” Powell concluded.

Source: CNN Brasil

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