the Fed must act firmly against inflation, says Jerome Powell

“We must act firmly as we have done, and we must persevere until the job is done,” said the president of the American central bank.

The Fed must act firmly against inflation, in order to avoid the painful consequences for households of prices which would continue to escalate, as in the late 1970s and the beginning of the 1980s, its chairman, Jerome Powell, said Thursday.

We must act firmly as we have done, and we must persevere until the job is done. To avoid this“, said the president of the American central bank (Fed) during the annual monetary conference of the Cato Institute. “We think we can avoid the kind of very high social costs“that the Fed had, at the time, “had to impose to bring down inflation and establish a long period of price stability“, he added.

An inflationary spiral

The United States experienced a period of very high inflation in the 1970s and until the beginning of the 1980s. Price increases had approached 15% over one year. Jerome Powell referred to “what Paul Volcker (Chairman of the Fed from 1979 to 1987, editor’s note) and the Fed did to finally control inflation after several unsuccessful attempts“, pointing out that”the public had come to view higher inflation as the norm and expect it to continue“.

Such high inflation expectations on the part of consumers maintain the inflationary spiral, making the fight against this rise in prices even more painful. The Fed had to take drastic measures under Paul Volcker to bring inflation back into line. “Hurry up“Warned Jerome Powell again. He also pointed out that “history warns of premature policy easing» monetary, signaling that the Fed should continue to tighten its policy, in order to slow consumption, despite fears of recession.

The Fed has raised its key rates four times since March, and they are now in a range of 2.25 to 2.50%. It should raise them again on September 21, at the next meeting of the Monetary Policy Committee (FOMC), its decision-making body. Another sharp rise, of three-quarters of a percentage point, is on the table.


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