The Fed must crack down on inflation to avoid the painful consequences for households of prices continuing to climb, as in the late 1970s and early 1980s, Chairman Jerome Powell said on Thursday. .
“We must act as firmly as we have, and we must persevere until the job is done. To avoid this,” the Fed chairman said at the Cato Institute’s annual monetary conference.
Avoid the drastic measures of the 80s
“We think we can avoid the kind of very high social costs” that the Fed, at the time, “had to impose in order to reduce inflation and establish a long period of price stability,” he added. The United States experienced a period of very high inflation in the 1970s and into the early 1980s. Price increases had reached about 15% in one year.
Jerome Powell referred to “what Paul Volcker [président de la Fed de 1979 à 1987, NDLR] and the Fed have done to finally rein in inflation after several failed attempts,” noting that “the public had come to see higher inflation as the norm and expected it to continue.
Such high inflation expectations on the part of consumers maintain the inflationary spiral, making the fight against this price increase even more painful. The Fed had to clamp down under Paul Volcker to bring inflation back in line.
Next key rate hike on September 21
He also noted that “history warns against premature easing of monetary policy,” indicating that the Fed must continue to tighten policy to curb consumption, despite recession fears.
The Fed has raised its key rates four times since March and they are now in a range of 2.25-2.50%. It should raise them again on September 21, at the next meeting of the Monetary Policy Committee (FOMC), its decision-making body. Another strong hike of three-quarters of a percentage point is on the table.
Source: BFM TV
