Fed's actions spoke louder than words to markets in fight against inflation, research finds
FOX Business’ Edward Lawrence shares highlights from Federal Reserve Chair Jerome Powell’s remarks at the Jackson Hole Economic Symposium.
The credibility of the Federal Reserve helped financial markets in the central bank's multiyear battle against inflation, but it had to back up its verbal promises to restore price stability with rate cuts, according to new research presented at the Kansas City Fed's annual research conference in Jackson Hole, Wyoming.
The research found that a strong perception in financial markets that a central bank is committed to controlling inflation can make its monetary policy more effective, prompting markets to shift financial conditions faster and lowering inflation with a less serious hit to economic growth than would otherwise be the case.
Although investors came to believe that Fed Chair Jerome Powell and other policymakers were serious about maintaining the central bank's 2% inflation target, that belief only formed over time and after officials began raising the benchmark federal funds rate in March 2022 and accelerated the hikes that summer, the researchers found.
Inflation surged to a 40-year high of 9.1% in June 2022, which prompted the Fed to raise the federal funds rate to a range of 5.25% to 5.50%, the highest level in 23 years. With the rate of inflation having slowed to 2.9%, the Fed is expected to cut interest rates in September for the first time since the onset of the COVID pandemic in March 2020.
FED'S POWELL: 'THE TIME HAS COME' FOR INTEREST RATE CUTS
The Federal Reserve's actions in raising interest rates were needed to back up its rhetoric about countering inflation, researchers found. Shown here is Fed Chair Jerome Powell. (ROBERTO SCHMIDT/AFP via Getty Images / Getty
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