Following the Fed chairman’s comments, US stock markets ended the week considerably lower.
Jerome Powell, the head of the bank, said that interest rates need to go up to stop inflation from becoming permanent.
His words sent US stocks 3% down.
Following the Fed chairman’s comments, US stock markets ended the week considerably lower. The bank’s head, Jerome Powell, stated that interest rates must be increased to prevent inflation from becoming permanent. His words sent US stocks 3% down. Americans spend more on necessities. Inflation in the United States is at a four-decade high.
Mr. Powell stated in a speech he delivered in Wyoming on Friday that the Federal Reserve is expected to raise interest rates in the coming months and keep them elevated “for some time.” “Reducing inflation will necessitate growth below trend,” he stated in Jackson Hole.
If economic growth slows, investors fear that rising interest rates may trigger a recession. Mr. Powell stated that controlling inflation would be worthwhile regardless of the cost to the American people and businesses.Higher interest rates, slower economic growth, and a weaker labour market will reduce inflation while harming families and businesses, he said.
Reducing inflation has repercussions, but failing to stabilise prices would be much more detrimental. Mr. Powell’s desire is to reduce inflation. Individuals will act appropriately if they believe inflation will be high, generating a self-fulfilling prophecy. A person who anticipates a 3% rise in expenses next year may request a 3% raise. When this happened before, Mr. Powell’s predecessor, Paul Volcker, had to raise interest rates by a lot, which led to a recession.
In March, the Federal Reserve’s key interest rate was close to zero; it is currently between 2.25 and 2.5% to battle inflation.
