Federal Reserve Chairman Jerome Powell is throwing cold water on President Biden’s hopes that inflation will fade as a dominant issue in the midterm elections.
Mr. Powell delivered a blunt message: The Fed is determined to fight inflation with more sharp interest rate hikes, which will likely cause pain for Americans in the form of a weaker economy and job losses.
“These are the unfortunate costs of reducing inflation,” Mr. Powell said in a high-profile speech Friday at the Fed’s annual economic symposium in Jackson Hole, Wyoming. “But a failure to restore price stability would mean far greater pain.”
Stocks plummeted Friday on Mr. Powell’s sobering message, with all three major indexes losing more than 3%.
Inflation hit a 41-year high of 9.1% in June, but there are signs it is easing slightly. A Commerce Department report on Friday that is closely watched by the Fed showed consumer prices rose 6.3% in July from a year earlier after posting an annual increase of 6.8% in June, the biggest jump since 1982.
Mr. Biden said the report “confirms that our economic plan is building the economy from the bottom up and the middle out and we are making progress.”
“The American people are starting to get some relief from high prices, and the Inflation Reduction Act that I signed last month will also help bring prices down,” Mr. Biden said, referring to the Democrats’ $740 billion tax-and-spending bill that he signed into law this month.
But Mr. Powell said Fed officials are determined to bring inflation under control with more hikes in the central bank’s benchmark interest rate, a move that will likely discourage growth and spur layoffs. Mr. Powell’s remarks suggested that the Fed is aiming to raise its benchmark rate — to about 3.75% to 4% by next year — yet not so high as to tank the economy, in hopes of slowing growth long enough to conquer high inflation.
After raising its key short-term rate by a steep three-quarters of a point at each of its past two meetings — part of the Fed’s fastest series of hikes since the early 1980s — Mr. Powell said the Fed might ease up on that pace “at some point.” That suggests any such slowing isn’t near.
Runaway price increases have soured most Americans on the economy, even as the unemployment rate has fallen to a half-century low of 3.5%. It has also created political risks for Mr. Biden and congressional Democrats in this fall’s elections, with Republicans denouncing the president’s $1.9 trillion financial support package, approved last year, as having fueled inflation.
Critics say the Inflation Reduction Act will have no impact on inflation, and say the consumer price figures released Friday offer little to cheer about.
“Democrats and their media allies are celebrating today’s month-over-month decline in the PCE Index while ignoring that year-over-year inflation remains near a 40-year high,” said Alfredo Ortiz, president and CEO of Job Creators Network. “To ultimately end this sustained period of high inflation, the Biden administration and Congressional Democrats must commit to stopping their reckless spending.”
Rep. Kevin Brady of Texas, the top Republican on the House Ways and Means Committee, said the latest inflation report still shows signs that the economy is contracting.
“This is what a recession does, drives energy prices down as families can no longer afford the cost,” Mr. Brady said. “While the White House bizarrely brags about ‘Zero Inflation,’ raging ‘Biden-Flation’ has shrunk family paychecks for the past five consecutive quarters, and this is before taking into account the disastrous effects of Democrats’ ‘climate bill’ and inflationary student loan amnesty that will raise prices even higher.
“The future looks bleak for working families who are waiting to get hit with 710,000 new IRS audits while being forced to pay off the student debt for a tiny portion of qualifying well-off Americans,” Mr. Brady said. “We did better when Republican tax reform led to higher paychecks for the middle class that outpaced inflation. No wonder President Biden keeps repeating his debunked lies about it.”
Mr. Biden acknowledged that his administration has more work to do to ease the economic burden on families.
“We have to help families who have been squeezed by decades living paycheck to paycheck,” he said. “But today confirms that our economic plan is building the economy from the bottom up and the middle out and we are making progress.”
— This article is based in part on wire service reports.
