August 25 (UPI) — U.S. Federal Reserve Chair Jerome Powell delivered a highly anticipated speech on Friday at the Jackson Hole economic symposium in Wyoming, stating the continued presence of high inflation in the economy and the potential need for higher lending rates.
Powell highlighted that measures implemented to address the overheating economy are having an impact, but further actions might be required.
“While inflation has decreased from its peak, it is still at an unacceptable level,” he explained. “If appropriate, we are prepared to raise rates further and will maintain a restrictive policy until we are confident that inflation is steadily moving towards our target.”
The Federal Reserve has increased its key lending rate to a 22-year high of 5.4% since last year’s conference. Inflation, on the other hand, has been decreasing. Headline inflation reached 9.1% in June 2022 and has since dropped to 3.2% over the 12-month period ending in July.
However, this figure still exceeds the Federal Reserve’s target rate of 2%.
According to Powell, the economy has performed better than expected so far this year, with particularly strong consumer spending.
“If evidence of consistently above-trend growth appears, it could jeopardize progress in curbing inflation and necessitate further tightening of monetary policy,” he warned.
Despite robust consumer spending, the Federal Reserve Bank of New York recently reported that credit card debt has become the largest source of consumer debt, increasing by $45 billion during the second quarter and reaching $1.03 trillion.
Lending rates are also unfavorable. In the housing sector, the fixed-term mortgage rate for 30 years is above 7%, leading to a 16.6% decrease in existing home sales compared to the previous year. Moody’s Investors Service has placed U.S. banks on a negative watch list and cautioned about a potential “mild” recession in early August.
“Although the possibility of another rate hike in the current cycle is still uncertain – in my opinion, they have concluded hiking – traders are increasingly realizing that they will likely remain at this level longer than expected,” stated Craig Elam, a market analyst at OANDA.
Elam also noted that Powell’s speech did not deviate significantly from previous statements, resulting in a muted market reaction and no substantial movement in major U.S. stock market indices. Crude oil prices initially rose by around 1%, but the rally has since subsided.
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