U.S. stock markets fall on interest rate warning from Jerome Powell

U.S. stock markets fall on interest rate warning from Jerome Powell: Following stern remarks made by the president of the Federal Reserve, the US stock markets concluded the week substantially down.

Jerome Powell, the bank’s chairman, said that the bank must keep raising interest rates to prevent inflation from becoming a recurring feature of the US economy.

His statements caused US equities to crash, with markets falling 3%.

It happens at a time when Americans must spend more on necessities.

Inflation is at a four-decade high in the biggest economy on earth.

During a much-anticipated address at a conference in Wyoming, Mr. Powell said that the Federal Reserve might maintain interest rates high “for some time” and would likely impose further rate rises in the following months.

During the Jackson Hole summit, he said that “reducing inflation is likely to need a protracted period of below-trend growth.”

Investors worry that rising interest rates would make a recession more likely if economic growth slows.

Mr. Powell acknowledged that bringing inflation under control would cost American firms and individuals. But he insisted that the expenditure was worthwhile.

While slower GDP, higher interest rates, and a weaker labor market may help to reduce inflation. He said, “they will also hurt households and companies.”

These are regrettable consequences of lowering inflation. But far more suffering would result from failing to restore price stability.

Mr. Powell wants to stop inflation from getting out of control. But unfortunately, that implies that individuals will change their behavior by their beliefs, creating a self-fulfilling prophecy if they anticipate significant inflation.

For instance, someone anticipating a 3% increase in prices next year is more likely to demand a 3% increase in pay.

When this occurred, Paul Volcker, Mr. Powell’s predecessor, was forced to slam on the breaks. Significantly hiking interest rates and plunging the country into recession.

The Federal Reserve’s benchmark interest rate was practically zero in March; in an attempt to combat inflation. It has subsequently increased to a range of 2.25% to 2.5%.