Fed chief Jerome Powell is under pressure to curb inflation

A MARTÍNEZ, HOST:

Federal Reserve Chairman Jerome Powell said today the central bank's overarching focus is to curb inflation. And Powell left no doubt that he and his colleagues will keep raising interest rates until they're confident that prices are under control. Powell delivered a forceful speech to a gathering of economic bigwigs in Jackson Hole, Wyo. He acknowledged that rising interest rates come at a cost for families and businesses, but Powell warned the alternative of unchecked inflation could be worse. NPR's chief economic correspondent Scott Horsley joins us now. Scott, Powell's message this morning was short and direct. What did he have to say?

SCOTT HORSLEY, BYLINE: It was very short. Powell spoke for less than 10 minutes, and it was very direct. He said the Fed has an unconditional responsibility to bring down inflation and that he and his colleagues are committed to doing that, even if there is some short-term pain involved in the shape of slower economic growth and possibly higher unemployment. You know, it was another Fed chairman, Paul Volcker, who spoke at the first Jackson Hole conference back in 1982. And by the time Volcker took charge of the Fed, the U.S. had already gone through more than a decade of failed, often halfhearted efforts to control inflation. By that time, people had gotten so used to soaring prices that it took a really severe recession for Volcker to turn things around. Now, Powell and his colleagues hope to avoid a recession like that, but Powell says that means not moving in fits and starts but rather taking a firm stance against inflation right now.

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JEROME POWELL: We are taking forceful and rapid steps to moderate demand so that it comes into better alignment with supply and to keep inflation expectations anchored. We will keep at it until we're confident the job is done.

HORSLEY: At some point, Powell said, it will be appropriate to slow down the pace of interest rate hikes. But he made it clear we're not there yet.

MARTÍNEZ: OK. Now, the Fed's have been raising interest rates up pretty aggressively. How high are rates likely to go?

HORSLEY: Clearly higher than they are right now. Remember, the Fed kept interest rates near zero through much of the pandemic. But since March, the central bank has raised rates by 2 1/4 percentage points. Now, another rate hike's expected at the next policy meeting in September. And investors have been going back and forth about whether they expect another three-quarter percentage point increase like we saw in June and July, or if they think the Fed might slow down a bit and raise rates by only half a point like it did in May. Powell did not offer a lot of guidance on that this morning. But keep in mind, even a half-point increase would be large by ordinary standards. And you can already see the effects of this policy in the housing market. This week, mortgage rates jumped back above 5 1/2%. A year ago, you could have a mortgage for less than 3%. And those rising borrowing costs are starting to put the brakes on both new and existing home sales. They're making it more expensive to get car loans and also to carry a balance on your credit card.

MARTÍNEZ: Now, Powell and his colleagues have said they're going to be flexible as new information about the economy comes in. And we have new information today.

HORSLEY: That's right. Shortly before Powell spoke, the Commerce Department released its report on July inflation. And according to the department's yardstick, which is watched closely by the Federal Reserve, consumer prices actually fell by a 10th of a percent between June and July. That's largely thanks to falling gasoline prices. If you take out gas and food prices, which tend to bounce around a lot, core prices have risen 4.6% over the last 12 months. That's the smallest increase in nine months. So it's an encouraging sign that inflation may be cooling, but Powell is not sounding complacent.

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POWELL: While the lower inflation readings for July are certainly welcome, a single month's improvement falls far short of what the committee will need to see before we are confident that inflation is moving down.

HORSLEY: And the prospect of rising interest rates is weighing on the stock market. Right now, the Dow Jones Industrial Average is down more than 500 points.

MARTÍNEZ: NPR's Scott Horsley. Thanks, Scott.

HORSLEY: You're welcome. Transcript provided by NPR, Copyright NPR.