Powell hammers home inflation fight in Jackson Hole speech

Federal Reserve Chairman Jerome Powell hammered home the Fed’s 2-percent inflation target on Friday amid speculation that the bank could tolerate a higher annual inflation rate in the post-pandemic economy.

“It is the Fed’s job to bring inflation down to our 2 percent goal and we will do so,” he said at a gathering of central bankers in Jackson Hole, Wyo., a luxurious resort destination near Yellowstone National Park.

Prices as measured in the Consumer Price Index (CPI) are now 3.2 percent higher than they were last year, having bucked up in July from a 3.1-percent annual increase in June.

As measured by the personal consumption expenditures price index (PCE), prices are 3 percent higher than they were last year.

Fed officials are attempting to bring rates high enough to bring price growth back down to the bank’s target level without slowing the economy into a recession. Some economists have suggested the Fed should settle with inflation slightly above 2 percent to avoid derailing the economy.

Powell’s speech left the door open for further rate hikes in pursuit of the 2-percent goal, but Wall Street saw lower odds of a rate hike after his remarks.

The Fed Watch prediction algorithm by financial company CME put the odds of another quarter-point rate hike at the Fed’s next meeting at 13.5 percent, down from 17.5 percent on Thursday.

After spiking throughout the recovery from the coronavirus pandemic, inflation lies mostly now in housing, the sector of the economy most sensitive to rate hikes.

Powell said Wednesday to expect an easing in housing prices over the coming year, but stopped short of saying that prices would actually come down rather than simply decelerating.

“The market rent slowdown has only recently begun to show through to that measure,” Powell said, likely in reference to the owners’ equivalent rent subsection of the CPI, which only started coming down in May.

“The slowing growth in rents for new leases over roughly the past year can be thought of as in- -the-pipeline and will affect measured housing services inflation of the coming year,” he said.

The Fed has been hiking interest rates since March of last year in order to curb inflation, which reached a four-decade high of 9.1 percent in June 2022.

The blame for inflation — a complex international phenomenon — has fallen somewhat along party lines in the U.S. Most economists agree that a combination of “supply-side” disruptions and “demand side” stimulus payments made to households by both the Trump and Biden administrations are behind rising prices.