Jerome Powell Reveals What’s Next! ~ Dec. 8, 2022

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Jerome Powell Signals Slowing Interest Rate Hikes

(RightWing.org) – In the spring of 2021, signs of inflation began to show as America came out of COVID-19 lockdowns. For nearly a year, manufacturers and supply chain companies were heavily impacted by shutdowns. Yet, Americans were ready to get out of their homes and spend money, and spend they did.

The problem was the demand for goods and services exceeded the supply and caused prices to rise. This was coupled with a low supply of workers, sparking offers of higher wages by businesses to lure them back. President Joe Biden and Federal Reserve Chairman Powell asserted inflation was transitory and temporary. It turned out they were wrong. In early 2022, the Federal Reserve began increasing interest rates to combat fast-paced price rises that hit 40-year highs.

On Wednesday, November 30, Powell signaled the Fed might start slowing down interest rate hikes.

Federal Reserve May Start Slowing Interest Rate Hikes

On four consecutive occasions throughout 2022, the Federal Reserve increased rates by a whopping 0.75%. The result was consumers paying more to borrow money on credit cards, loans, and mortgages.

During a November 30 speech at the Brookings Institute’s Hutchins Center, Powell stated the Fed would begin moderating its rate increases as early as December. He noted that monetary policy impacts on inflation often lag, and the effects of their rate increases weren’t affecting it yet.

Still, Powell said the timing of when to back off rate increases was more important than how much the central bank raises rates or maintains a restrictive level to bring prices down. The chairman also warned interest rates would remain “at a restrictive level for some time.” He said history cautions against loosening too quickly.

Powell Expressed Need to Balance Workforce Supply and Demand to Reduce Inflation

In 1913, Congress created the Federal Reserve as the nation’s central bank. Its purpose was to provide the country with a “safer, more flexible, and more stable monetary and financial system.” One of the ways it does this is through monetary policy that influences credit conditions and money. In doing so, it attempts to find the balance between full employment and stable prices.

In addition to combating inflation, Powell noted labor participation rates continue to struggle. He argued it was a result of “excess retirements” in the shadow of the COVID lockdowns that would not have normally occurred in the economy. He stated the demand for workers was more plentiful than the supply, which caused wages to grow faster than expected, influencing the prices of products and services.

Powell said the Fed wants to restore supply and demand within the labor market. He noted it wasn’t within the central bank’s mandate to create policies that impact the labor supply. Instead, it works in the area of demand. He said to restore balance, labor demand growth needs to moderate.

The question is, will businesses continue to struggle to find workers and therefore have to spend more on wages?