Jerome Powell: Following an interest rate warning, US stock markets fell

• Jerome Powell, the bank’s chairman, stated that the bank must keep raising interest rates to prevent inflation from becoming a recurring feature of the US economy.
• His statements caused US stocks to crash, with markets falling 3% as a result.
• Inflation is at a four-decade high in the biggest economy on earth.

Following stern remarks made by the head of the Federal Reserve, the US stock markets concluded the week substantially lower.

Jerome Powell, the bank’s chairman, stated that the bank must keep raising interest rates to prevent inflation from becoming a recurring feature of the US economy.

His statements caused US stocks to crash, with markets falling 3% as a result. It happens at a time when Americans must spend more on necessities.

Inflation is at a four-decade high in the biggest economy on earth.

On Friday, during a much-anticipated address at a conference in Wyoming, Mr. Powell stated that the Federal Reserve might keep interest rates high “for some time” and would likely impose additional rate hikes in the upcoming months.

He stated during the Jackson Hole meeting that “reducing inflation is likely to need a protracted period of below-trend growth.”

Investors worry that if economic growth slows, rising interest rates will make a recession more likely.

Mr. Powell acknowledged that bringing inflation under control would cost American businesses and households, but he insisted that the expenditure was worthwhile.

While slower GDP, higher interest rates, and a softer labor market may help to reduce inflation, he added, “they will also hurt households and companies.”

These are regrettable costs of lowering inflation, but much more suffering would result from failing to restore price stability.

Mr. Powell wants to stop inflation from getting out of control. That simply means that people will change their behavior in accordance with their beliefs, creating a self-fulfilling prophecy if they anticipate significant inflation. For instance, someone who anticipates a 3% increase in prices next year is more likely to demand a 3% increase in pay.

When this occurred previously, Paul Volcker, Mr. Powell’s predecessor, was forced to slam on the breaks, significantly hiking interest rates and plunging the country into recession.

The Federal Reserve’s benchmark interest rate was practically zero in March; in an effort to combat inflation, it has since been increased to a range of 2.25% to 2.5%.

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