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Jay Powell will make a much-awaited speech on Friday as the Federal Reserve seeks to battle the worst inflation in four decades without tipping the world’s biggest economy into recession.
The Fed chair will deliver his remarks at 10am Eastern Time at the first in-person gathering of the annual Jackson Hole conference since the start of the coronavirus pandemic.
The event, which brings together central bankers from around the world, comes as the Fed grapples with questions about its resolve to squeeze the US economy sufficiently to root out inflation.
Powell devoted last year’s Jackson Hole speech to backing the Fed’s argument that the consumer price surge was a temporary phenomenon resulting from supply chain-related issues. But it has since become clear that price pressures are more demand-driven and therefore likely to persist for longer.
The Fed, which has now embarked on the most aggressive tightening cycle since 1981, must decide whether it should maintain such a pace or instead begin to reduce the size of its interest rate increases, as concerns grow over the risks of heavy-handedness.
Financial markets have rallied in recent weeks amid expectations the Fed could ease up on its efforts to reduce demand as incoming economic data deteriorate further.
Last month the central bank delivered its second consecutive 0.75 percentage point rate rise, bringing the federal funds rate to a new target range of 2.25 per cent to 2.50 per cent.
Fed officials are debating whether a third such adjustment will be necessary at its meeting in September, or if a half-point adjustment is more appropriate.
Atlanta Fed president Raphael Bostic said the decision amounted to a coin toss, in an interview on Thursday with The Wall Street Journal.
Officials maintain that their commitment to restoring price stability is “unconditional”, suggesting a willingness to tolerate higher unemployment.
James Bullard, president of the St Louis Fed and a voting member on the Federal Open Market Committee this year, warned in an interview with CNBC on Thursday that the Fed may have to keep interest rates higher for longer than initially expected, given that elevated inflation looks likely to linger.
He added that he supported the fed funds rate reaching between 3.75 per cent and 4 per cent by the end of the year.
Most officials still maintain they can bring inflation under control without causing a painful recession. However, this runs counter to the consensus view among Wall Street economists, who predict at least a mild recession some time in the next year.
Economists also expect the unemployment rate to rise beyond the 4.1 per cent broadly anticipated by FOMC members and regional bank presidents in June. The unemployment rate, the current bright spot in the US economy, hovers at a multi-decade low of 3.5 per cent.
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