Fed Chair Powell Voices For Further 'Restrictive Policy Stance': Stock Markets Fall

US Federal Reserve Chair Jerome Powell, at the annual Jackson Hole Symposium, mentioned that the US central bank will continue its 'restrictive policy stance', with an aim to control the inflation rate in the country. US Fed Chair reiterated that they want the inflation rate to be within 2%. Powell stated, "Restoring price stability will likely require maintaining a restrictive policy stance for some time. The historical record cautions strongly against prematurely loosening policy."

This indicated that Fed will continue its hawkish move and can initiate a rate hike in the next monetary policy meeting, on September 21. On that ground, Powell mentioned, "In July's increase in the target range was the second 75 basis point increase in as many meetings, and I said then that another unusually large increase could be appropriate at our next meeting. We are now about halfway through the inter-meeting period. Our decision at the September meeting will depend on the totality of the incoming data and the evolving outlook. At some point, as the stance of monetary policy tightens further, it likely will become appropriate to slow the pace of increases." The central bank officials are drawing lessons from the monetary policy deliberations and decisions from the high and volatile inflation of the 1970s and 1980s.

In the July FOMC meeting, Fed raised the target range for the federal funds rate to 2.25% to 2.5%, which is in the Summary of Economic Projection's (SEP) range of estimates of where the federal funds rate is projected to settle in the longer run.

Later Powell added, "Our responsibility to deliver price stability is unconditional...It is also true, in my view, that the current high inflation in the United States is the product of strong demand and constrained supply, and that the Fed's tools work principally on aggregate demand...History shows that the employment costs of bringing down inflation are likely to increase with delay, as high inflation becomes more entrenched in wage and price setting."

After Powell completed his speech at the symposium, major stock indexes started to fall, as investors are anticipating another rate hike in the September meeting. NASDAQ Composite Index fell by 2.69%, Dow Jones Industrial Average fell by 1.82%, and S&P 500 Index fell by 2.18%, at the time of writing. Comex gold futures also fell sharply by around 1.25%, quoted at US$ 1,749.20/oz.