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Powell says ‘some pain’ ahead for consumers, signals Fed will continue aggressive rate hikes

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Federal Reserve Chairman Jerome Powell chats with others at the central bank’s annual symposium in Grand Teton National Park.

Federal Reserve Chairman Jerome Powell, left, chats with Federal Reserve Vice Chairwoman Lael Brainard, center, and Federal Reserve Bank of New York president and CEO John Williams at the central bank’s annual symposium in Grand Teton National Park Friday, Aug. 26, 2022, in Moran, Wyo.

Amber Baesler, Associated Press

Federal Reserve Chairman Jerome Powell signaled the monetary body will continue making aggressive interest rate hikes aiming to quell ongoing record-high inflation in a speech Friday morning.

Speaking from the Fed’s annual economic symposium in Jackson Hole, Wyoming, Powell said the slight downtick in the U.S. inflation rate in July fell far short of ample evidence that price increases are truly in a downward cycle. And, he warned consumers and business owners to expect more economic challenges in the near term to avoid worse consequences down the road.

“While higher interest rates, slower growth, and softer labor market conditions will bring down inflation, they will also bring some pain to households and businesses,” Powell said. “These are the unfortunate costs of reducing inflation. But a failure to restore price stability would mean far greater pain.”

The Fed board is set to meet in late September and is likely to follow up the .75% increases imposed in June and July — the biggest series of interest rate hikes in decades — with another .5% to .75% bump.

The most recent Labor Department Consumer Price Index report pegged overall inflation in July at 8.5%, a downturn from June’s 9.1% driven mostly by gas and energy prices declining after hitting all-time records earlier this summer. U.S. inflation rates have run at or near 40-year highs for most of 2022.

Grocery prices were up 13.1% in July, the biggest year-over-year jump since 1979, according to the report. The cost of shelter, medical care, car insurance, new vehicles and recreation all rose in July as well.

The next inflation update from the Labor Department will drop on Sep. 13.

While Powell indicated the Fed won’t retreat from its plan to continue steep upward adjustments to its benchmark rate in the near term, he did hint at a foreseeable policy shift.

“Our decision at the September meeting will depend on the totality of the incoming data and the evolving outlook,” Powell said. “At some point, as the stance of monetary policy tightens further, it likely will become appropriate to slow the pace of increases.”

Powell’s remarks at the symposium this week stand in stark contrast to the stance he took during last year’s edition of the gathering when he characterized rising inflation as a “transitory” situation that would abate as global supply chain issues eased.

An unexpectedly robust jobs report earlier this month showed the nation finally recovered the 22 million jobs lost amid pandemic conditions as employers added 528,000 positions in July and annual wage growth was north of 5%. But, those bigger paydays are still falling well short of inflation-driven price increases and some reports show over 150 million Americans are struggling to keep up and living paycheck to paycheck.

The solid employment data, along with July inflation numbers, are fueling the Fed’s commitment to continuing its streak of hefty benchmark interest rate hikes as the monetary body struggles to strategically tamp down the economy and reduce record price increases on consumer goods and services.

Powell noted the U.S. is not alone when it comes to navigating the challenges posed by rising costs.

A forecast released earlier this week by U.S.-based Citibank predicted that inflation in the United Kingdom could soar to a near half-century high of 18.6% by January, according to a report from Reuters. The inflation rate for the 19 countries that share the euro currency rose to 8.9% in July, up from 8.6% in June.