Jerome Powell, Chairman of the US Federal Reserve, stated that they are strongly committed to the fight against inflation and said, “We must act directly, strongly, as we do now, and continue until the job is done.”
Jerome Powell made the comments at the Cato Institute’s 40th Annual Money Conference.
Pointing out that the Covid-19 epidemic seriously disrupted the economy and caused risks, Powell said that such high inflation would not have been seen had it not been for the effects of the epidemic. Stating that the epidemic caused shifts in demand and supply-side restrictions, Powell stated that it contributed to inflation.
Reminding that the epidemic also caused a decrease in the workforce, Powell explained that this increased the constraints on supply and caused an upward pressure on wages with extremely tight labor market conditions.
‘WE MUST MOVE STRONG, CONTINUE UNTIL THE WORK IS FINISHED’
Stating that he accepted his responsibility for price stability in line with the Fed’s target of reducing inflation to 2 percent, Powell said, “We must act directly, strongly, as we do now, and continue until the job is done.”
Expressing that the longer the inflation stays above the target, the greater the risk, Powell reminded that history strongly warned against the policy of early relaxation.
Powell reiterated that they are “strongly committed” to the fight against inflation, emphasizing that they never take into account foreign policy considerations.
Pointing out the importance of anchoring inflation expectations, Powell said that the longer the inflation stays above the target, the greater the concern that the public will naturally start to include higher inflation in the economic decision-making process.
‘PERMANENT LABOR DEFICIT WILL CREATE CHALLENGES’
Pointing out that the demand in the labor market is still very strong, Jerome Powell explained that the permanent labor shortage will create difficulties.
Stating that the structure of the economy is constantly changing, Powell said that many countries around the world are experiencing high inflation.
Pointing out that the FED’s monetary policy is under high uncertainty, Powell noted that this situation complicates their work.
Commenting on the Fed’s balance sheet, Powell said that the balance sheet is already significantly large and that the balance sheet reduction process, which started in June, accelerated this month.
Powell reiterated that they are ready to change the details of the balance sheet reduction plan at any time according to the economy and market developments. Stating that the current frameworks in the balance sheet are good, Powell stated that there is no need to return to limited reserves.
On a question about the central bank digital currency, Powell replied, “No decision has been made on the central bank digital currency.” Stating that they continue to evaluate the advantages and disadvantages of the central bank digital currency, Powell stated that the evaluation process will take some time.