Federal Reserve Chairman Jerome Powell said on Wednesday that fixing inflation will “highly likely” involve some pain for the American people, but claimed that failing to address it would be even worse for the nation and the economy.
During a panel at the European Central Bank forum, host Francine Laqua asked Powell, “If you’re speaking out to the American people to try and help them understand how long it will take for, you know, monetary policy to go back to something that resembles normalcy … what would you tell them?”
“I would say that we fully understand and appreciate … the pain people are going through dealing with higher inflation, that we have the tools to address that and the resolve to use them, and that we are committed to and will succeed in getting inflation down to two percent,” he responded.
“The process is likely, highly likely to involve some pain, but the worst pain would be from failing to address this high inflation and allowing it to become persistent,” Powell added.
The United States experienced record inflation in May as it skyrocketed to 8.6%.
In an effort to manage high inflation, monetary policymakers at the Federal Reserve are hiking interest rates — most recently through a 0.75% increment that represented the boldest move to battle inflation in nearly three decades. Rate hikes increase the cost of borrowing capital, thereby tightening business investment and consumer activity. Earlier in June, Federal Reserve Governor Christopher Waller warned that efforts from the central bank to tackle higher price levels would lead to higher unemployment.
The Fed’s chairman’s answer came shortly after admitting that his understanding of inflation was more limited than he thought.
Laqua had previously posed to the panel, “Hindsight is a beautiful thing, I know … but going forward … how do we need to look at inflation differently? So, for example, in the U.S. — the stimulus. Did we circulate the impact this would have on inflation?”
“I think we now understand better how little we understand about inflation,” Powell responded.
The Bloomberg TV anchor responded with a chuckle, “That’s not very reassuring.”
“No, honestly, this was unpredicted. I was looking at the time of our June meeting one year ago, of the 35 people who filed with a survey of professional forecasters, 34 of them had inflation below four percent for the last year. And of course, it was way above four percent.”
Powell also clarified that experts were using an outdated model to predict inflation, which is why none of our nation’s supposed-brightest economic minds saw the inflation coming.
“So really, everyone had the same model — which was the Phillips curve model — and it just was not capable of producing high inflation. But what it was missing was something that’s been completely missing in the data for 40 years, which is basically the collapse of the supply-side.”
Jerome Powell: "I think we now understand better how little we understand about inflation."
Host: "That's not very reassuring"
Jerome : "This was unpredicted"
Only the "experts" and the media didn't see this coming.
Just about everyone else did.
Sound ON pic.twitter.com/6Gv35rXPrW
— Wall Street Silver (@WallStreetSilv) June 29, 2022
The data indicate that the American people are already feeling “pain” from inflation and directly blaming President Joe Biden for it.
Recently, CNN’s senior data reporter Harry Enten explained that the University of Michigan’s consumer sentiment survey “is the worst consumer sentiment ever measured by the University of Michigan going all the way back since 1952.”
“And in terms of why are consumers feeling this bad?” the senior analyst continued. “Well, it’s pretty clear why they’re feeling this bad, and that is because the Consumer Price Index is the worst it’s ever been in a midterm cycle since ’74; it’s the worst it’s been in any presidential cycle or midterm cycle since 1980. So, it’s not much of a surprise. You can see it, it’s literally off the charts on the table on your screen.”
CNN's Harry Enten on Biden's "awful" approval rating on inflation: Biden is "doing WORSE than Jimmy Carter" pic.twitter.com/2vbBx4tLvE
— RNC Research (@RNCResearch) June 15, 2022
Evidence also shows that Americans have changed their eating habits, vacation plans, and more as they struggle to make ends meet in Biden’s economy.
Ben Zeisloft contributed to this report.