Thomas BabychanChairman of the US Federal Reserve, Jerome Powell on Thursday said that it is very important to bring down inflation rates in the US economy as high prices for prolonged period could have serious negative impacts on the economy.
Jerome Powell was participating in a question and answer session conducted by Cato Institute, a think tank based in Washington DC.
Mr Powell said that stricter measures to bring down inflation will continue from the side of US Federal Reserve as people should not get used to higher prices. If the general population gets used to the inflated prices for consumer products for top long, the new prices will become a norm which will be detrimental for the state of economy.
Such an economic phenomenon was present during the 1970s and 80s when any increase in inflation rates and commodity prices were taken as normal by the general population. This phenomenon resulted in high inflation rates in the United States for a prolonged period of time.
With the latest statement from Jerome Powell on inflation rates and monetary policy of the US Federal Reserve, any expectations in the market about a premature loosening of policies are diminishing.
Jerome Powell said that he along with his colleagues at the US Fed will ensure that inflation is brought down to the benchmark laid down by central bank, 2%.
After a global economic slowdown caused by the COVID-19 Pandemic and resultant lockdown, increase in oil prices and essential commodities in international markets pushed inflation rates in the United States of America to a 40-year high of 9.1%.
This high inflation rate along with high unemployment numbers put serious pressure on the US Economy.
Apart from the economic effects of the COVID-19 Pandemic, the Russian military special operation in Ukraine and lower supply and increased demand for crude oil also played a huge role in high inflation rates.
The QnA session with Cato Institute was the final scheduled public appearance of Jerome Powell before meeting of US Federal Reserve on key policy issues. The meeting is expected to happen on September 20 and 21.
Even though labour markets in the United States and other key indexes in the economy are showing positive signs of recuperation, markets, and analysts expect an increase in interest rate by 75 basis points in the upcoming rate revision.