Federal Reserve Chairman Jerome Powell delivered a sobering message to global financial markets on Friday, indicating that the era of high interest rates is far from over as the central bank continues its aggressive battle against stubborn inflation.
Speaking at the prestigious Jackson Hole economic symposium in Wyoming, Powell acknowledged the progress made in taming price rises but emphasised that the fight is "not yet won" and warned against premature celebration.
No Quick Retreat on Monetary Policy
The Fed chief made clear that policymakers remain prepared to raise rates further if necessary and intend to keep policy restrictive until they are confident inflation is firmly on track back to their 2% target.
"We are prepared to raise rates further if appropriate, and intend to hold policy at a restrictive level until we are confident that inflation is moving sustainably down toward our objective," Powell stated in his highly anticipated address.
Market Jitters Following Powell's Remarks
The comments triggered immediate reactions across global markets, with Wall Street opening lower and government bond yields climbing as investors digested the prospect of prolonged tighter monetary conditions.
Financial analysts noted that Powell's tone was notably more hawkish than many had anticipated, dashing hopes for a swift pivot toward rate cuts despite recent signs of cooling inflation.
The Inflation Progress Assessment
While recognising that current inflation readings—which showed consumer prices rising at 3.2% in July—represent welcome progress from last year's peak, Powell cautioned that they remain "too high."
The Fed chair specifically highlighted that core inflation measures, which exclude volatile food and energy prices, continue to run significantly above the central bank's comfort zone.
Historical Parallels and Future Caution
Powell drew lessons from the 1970s inflation crisis, warning that the Fed must avoid the mistake of prematurely loosening policy before inflation is fully conquered.
"The historical record cautions strongly against prematurely loosening policy," he remarked, suggesting that the central bank will maintain its cautious approach even as economic data shows improvement.
With Powell's Jackson Hole address setting the tone for upcoming Fed meetings, markets now brace for a prolonged period of elevated borrowing costs that could test the resilience of both the US and global economies.
