According to the Bureau of Labor Statistics, year-over-year inflation reached 8.5% in July 2022, with a slight moderation from the 9.1% reading in the previous month driven by lower energy prices — even as costs for food, new vehicles, medical care, and shelter continue to rise. Powell said that the Federal Reserve still intends to reduce inflation to 2% — the rate largely maintained by policymakers for the past three decades.
“Price stability is the responsibility of the Federal Reserve and serves as the bedrock of our economy,” Powell said in a speech delivered at the central bank’s annual symposium in Jackson Hole, Wyoming. “Without price stability, the economy does not work for anyone. In particular, without price stability, we will not achieve a sustained period of strong labor market conditions that benefit all. The burdens of high inflation fall heaviest on those who are least able to bear them.”
According to the Joint Committee on Taxation’s State Inflation Tracker — which uses January 2021 as a benchmark month — rising price levels cost the typical American household $717 in July 2022 alone. Even if prices stop increasing altogether, inflation will cost Americans $8,607 from August 2022 through July 2023.
Powell warned, however, that the Federal Reserve’s contractionary monetary policy regime will achieve lower inflation by inducing economic headaches. Officials announced interest rate hikes of 0.75% twice in the past two months.
“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 continued. “These are the unfortunate costs of reducing inflation. But a failure to restore price stability would mean far greater pain.”
Powell emphasized that the rising prices seen during the 1970s and early 1980s taught the Federal Reserve that it “can and should take responsibility for delivering low and stable inflation” despite the fact that other developed nations are presently witnessing the same phenomenon.
“Our responsibility to deliver price stability is unconditional,” he said. “It is also true, in my view, that the current high inflation in the United States is the product of strong demand and constrained supply, and that the Fed’s tools work principally on aggregate demand. None of this diminishes the Federal Reserve’s responsibility to carry out our assigned task of achieving price stability. There is clearly a job to do in moderating demand to better align with supply. We are committed to doing that job.”
American Enterprise Institute senior fellow and former International Monetary Fund official Desmond Lachman said in a statement provided to The Daily Wire that Powell’s speech was “more hawkish than expected.”
“He noted that the labor market remains imbalanced and that, while there have been some recent signs that inflation is slowing, inflation remains too high,” Lachman explained, raising concerns of a hard economic landing as the Federal Reserve seeks to tighten the money supply.
Actions from the central bank to moderate inflation have contributed to drastically higher mortgage rates, which recently surged above 5.5% after residing below 3% through much of the past two years, according to data from government-backed mortgage company Freddie Mac.
Single-family homes have likewise witnessed dramatic price increases. In the first quarter of 2022, the median sale price of a home in the United States was $433,100, according to data from the Department of Housing and Urban Development, marking a 34% rise from $322,600 in the second quarter of 2020. Freddie Mac forecast last month that home prices will grow at 4% in 2023 — a relative slowdown from 17.8% in 2021 and 12.8% in 2022.