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Aug. 23, 2022, 9:39 a.m. EDT

Fed Jackson Hole preview: Powell to stress a recession won’t stop Fed’s fight against high inflation

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By Greg Robb

Federal Reserve Chairman Jerome Powell will use his closely-watched Jackson Hole speech this week to stress that the central bank is going to bring down the high U.S. inflation rate even if it means a recession, economists said.

“The core message will be the Fed’s dogged determination to bring inflation down even though they know they’ll be running substantial risks of a weaker short-term growth outlook than they would like,” said Lou Crandall, chief economist of Wrightson ICAP.

The minutes of the Fed’s July meeting released last Wednesday made this point, but it was lost in other headlines about the eventual slowing of the pace of interest rate hikes, Crandall said.

According to the minutes, Fed officials “recognized that policy firming could slowthe pace of economic growth, but they saw the return of inflation to 2% as critical to achieving maximum employment on a sustained basis.”

See : Federal Reserve officials back moving interest rates higher in order to slow the economy, minutes show

Crandall said that a Powell speech is a better place to deliver a message than the minutes and the determination to hold the line in the face of a weak economy and weak labor market will be “front and center,” he said.

“Inflation has gotten to the point where they have no choice but to accept that risk,” Crandall added.

Powell is scheduled to speak from Jackson Hole, Wyo., on Friday at 10 a.m. Eastern.

Make sure to listen to our podcast after Powell’s speech

U.S. consumer price inflation is running at an 8.5% annual rate in July, well above the Fed’s 2% target.

Concerns about an imminent recession have eased with the strong July jobs report and signs that the consumer is still spending .

The Fed has moved quickly this year to raise its benchmark policy rate. Since March, the Fed has pushed its fed funds rate to a range of 2.25%-2.5%.

Fed watchers are debating whether the Fed will engineer the third straight 0.75 percentage point rate hike at their next meeting on Sept. 20-21.

Economists are split on whether Powell gives any guidance about the size of the expected September hike at Jackson Hole.

Powell is not expected to shed much light on the key unknown – how far will interest rates have to rise in order to bring inflation down.

Carl Tannenbaum. chief economist at Northern Trust, said he thinks Powell will try to make the case for another 75 percentage point move in September.

“I think Powell will say with passion, and back it up with fact, that, in the long run, being really tough now is going to be much better for employment, much better for markets and much better for growth,” Tannenbaum said.

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