Federal Reserve Chairman Jerome Powell on Thursday said the central bank will hold tight to its goal of combatting inflation by raising interest rates.

Powell, speaking during a Q&A presented by the Cato Institute, said that the central bank is committed to bringing down inflation before the public begins to view higher prices as the norm.

“We need to act now forthrightly, strongly as we’ve been doing and we need to keep at it until the job is done,” Powell said.

The Fed has raised rates by substantial and historic increments at its last three policy meetings — a half-point hike in May and a pair of 0.75% hikes in June and July with the federal funds rate currently set in a range between 2.25%-2.5%.

Investors expect the Federal Open Market Committee will implement another 0.75% hike during the central bank’s Sept. 20-21 policy meeting.

Powell seemed to hint that the central bank will continue its aggressive rate hikes and would not soon reverse course and begin lowering interest rates any time soon.

“History cautions strongly against prematurely loosening policy,” he said. “I can assure you that my colleagues and I are strongly committed to this project and we will keep at it until the job is done.”

Powell said that maintaining these anti-inflation actions will help the central bank avoid “the very high social costs” of high prices and eventually reach price stability, which he characterized as 2% inflation over time.

“The longer inflation remains well above target, the greater risk the public does begin to see higher inflation as the norm and that has the capacity to raise the cost of getting inflation down,” he said.

Powell also cited the impact of the COVID-19 pandemic, noting that unemployment was at a 50-year low and inflation was low and stable before the virus emerged.

“None of this high inflation that we’re seeing around the world now would have happened without the pandemic,” he said. “The pandemic severely disrupted the economy, gave a rise to risks of much more dire economic consequences than actually transpired really.”

He said the pandemic led to a “large and persistent reduction” in the size of the labor market, while acknowledging that the latest labor market report on Friday showed “increased labor market participation” but was still a full percentage point below what it was pre-pandemic.”

“Demand is still very, very strong in the labor market. Wages are running at elevated levels so we think by our policy interventions what we hope to achieve is a period of growth below trend, which will cause the labor market to get back into better balance and that will bring wages back to levels that are more consistent with 2% inflation over time,” Powell said. “That’s what we’re trying to achieve.”

Markets were little-changed by Powell’s remarks, with the Dow closing the day up 193 points, but did dip slightly during the interview.
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