Jerome Powell: US stock markets down after interest rate warning

Following stern remarks made by the president of the US central bank, the Federal Reserve, stock markets in the US concluded the week substantially lower.

The bank’s chairman, Jerome Powell, declared that to prevent inflation from becoming a persistent feature of the US economy, the bank must keep raising interest rates. His statements caused US stocks to plunge, and markets fell by 3%.

It occurs at a time when Americans are facing higher prices for necessities.

Inflation in the biggest economy in the world is at a four-decade high. The Federal Reserve will likely impose additional interest rate hikes in the upcoming months and could keep them high “for some time,” according to Powell, who gave a highly anticipated address at a conference in Wyoming on Friday.

At the Jackson Hole conference, he declared that “reducing inflation is likely to require a sustained period of below-trend growth.”

Investors worry that increased interest rates will make a recession more likely if economic growth slows.

Getting inflation under control would cost American firms and individuals money, Mr Powell acknowledged, but he insisted that the sacrifice was worthwhile.

Inflation will be reduced by higher interest rates, slower GDP, and softer labour market conditions, but these factors will also hurt households and companies, the author stated.

Powell wants to stop inflation from getting too entrenched. To put it simply, this means that if individuals anticipate rising inflation, they will act in a manner consistent with that belief, creating a self-fulfilling prophecy. An individual who anticipates a 3% increase in prices, for instance, is more likely to demand a 3% increase in pay.

When it happened before, Mr Powell’s predecessor, Paul Volcker, had to slam on the breaks, substantially hiking interest rates and plunging the economy into recession.