Jerome Powell says the Fed’s fight against inflation will be “a little painful,” after saying last year that high inflation is “probably temporary”

At the event, Jerome Powell emphasized the need for tight monetary policy, and his comment implied that the Fed would not slow monetary tightening until inflation was under control.

Fed Chairman Jerome Powell says the U.S. central bank’s inflation policy could cause “some pain for households and businesses.”

Jerome Powell had a lot to say Friday. The Fed chief spoke for 10 minutes at this year’s Jackson Hole Economic Symposium hosted by the Federal Reserve Bank of Kansas City. The event, titled “Reassessing Constraints on the Economy and Policy“brought together a number of central bankers and policymakers from around the world.

Jerome Powell discussed inflation in the United States and he noted that the elimination of price volatility in the country will take “some time“. Powell further warned that the Fed’s battle with inflation will result in “some pain for households and businesses.“Despite this pain, Powell insisted that these were the “unfortunate costs of reducing inflation.“The 16th chairman of the Federal Reserve added:

But failure to restore price stability would mean far greater pain.

These statements were not well received by Wall Street investors and the Dow Jones fell 3% on Friday, recording its worst day since May. Technology stocks from the Nasdaq composite finished down 4% at the close. The crypto-currency markets lost 6.1% in 24 hours, while gold and silver also fell. During his speech, Jerome Powell opined that higher interest rates would slow growth and that “less favorable labor market conditions would lower inflation“. Powell continued:

At some point, as the stance of monetary policy tightens further, it will probably become appropriate to slow the pace of increases.

In essence, Jerome Powell is promising “strong and rapid measures to moderate demand” in order to “keep inflation expectations anchored.” In his view, the trend will continue and the Fed will continue to tackle inflation until the U.S. central bank is “convinced that the job is done.“Powell detailed that price stability is “the foundation” of the U.S. economy, and he stressed that the “Fed’s responsibility to ensure price stability is unconditional.“

Lost credibility? Jerome Powell’s statements in Jackson Hole in 2022 are very different from the comments made in 2021.

Former Fed Governor Randall Kroszner told CNN that he believes the Fed still has credibility, despite criticism of the U.S. central bank for inflating its balance sheet and claiming that inflation would be “transient“. “Fortunately, the Fed has not lost its credibility, and that is something I think it will continue to rely on“, Kroszner told CNN on Friday.

@federalreserve has zero credibility…. And I’m certain Jerome Powell won’t address the fact that the balance sheet wind down isn’t going as planned.

– MortgageCFO (@MortgageCFO) August 25, 2022

Powell’s recent statements are very different from the comments he made last year at the 2021st Jackson Hole Economic Symposium. “Inflation at these levels is, of course, a cause for concern“, Powell said last year. “But this concern is tempered by a number of factors that suggest these high readings are likely to prove temporary.“

At last year’s Jackson Hole gathering, the Fed chairman redoubled his belief that the rise in U.S. inflation would not last long, and that the central bank would be able to keep the 2 percent inflation target rate locked in. The speech recorded last year in Kansas City has been used repeatedly to highlight the Fed’s lack of credibility.

“Long-term inflation expectations have moved much less than actual inflation or short-term expectations, suggesting that households, businesses, and market participants also believe that the current high inflation readings are likely to prove transitory and that, in any event, the Fed will keep inflation close to our 2 percent objective over time“, added Jerome Powell, the Fed’s chief banker, at the 2021 Jackson Hole gathering.