Powell signals confidence in inflation control

Federal Reserve Chair Jerome Powell expressed optimism regarding the trajectory of inflation during his keynote address at the Fed’s annual economic conference in Jackson Hole, Wyoming. He reported that inflation, as measured by the Fed's preferred gauge, has decreased to 2.5% from a peak of 7.1% two years ago. Powell emphasized the Fed's goal of achieving a "soft landing," which entails managing inflation without triggering a recession. He attributed the progress to higher interest rates, the easing of supply chain issues, and a recovering labor market following the disruptions caused by the COVID-19 pandemic. In his remarks, Powell indicated that interest rate cuts are likely on the horizon, stating, “The direction of travel is clear.” He noted that the timing and pace of these cuts would depend on incoming economic data and the evolving outlook. Although the Fed had initially anticipated three rate cuts this year, those plans were delayed due to earlier setbacks in inflation control. However, the recent consistent decline in inflation has bolstered the Fed's confidence in its strategy. Powell acknowledged the challenges faced by policymakers in understanding the economic landscape since the pandemic began in early 2020. He reflected on the misjudgment of inflationary pressures, admitting that many analysts and central bankers had initially underestimated the situation. He underscored the importance of humility and adaptability in addressing current economic challenges, emphasizing the need to learn from past experiences.