US inflation: Powell says it's too high, Fed tightening on three dimensions
What's the latest?
Jerome Powell, the head of the Federal Reserve, said Tuesday that inflation in the US is too high and that the Fed is tightening monetary policy to bring it down.
Powell said the Fed's tightening can be looked at in three dimensions:
- Communicating an explicit inflation target
- Delivering inflation consistent with that target
- Using interest rates and other tools to achieve that target
The Fed has raised interest rates several times this year in an effort to cool inflation. Powell said the Fed will continue to raise rates until inflation is back to the Fed's 2% target.
Why is this important?
Inflation is a major concern for the Fed because it can erode the value of money and make it more difficult for people to afford basic necessities.
The Fed's goal is to keep inflation low and stable. When inflation is too high, the Fed raises interest rates to slow down economic growth and reduce demand for goods and services.
What's next?
The Fed is expected to continue raising interest rates in the coming months. Powell said the Fed will be data-dependent and will make decisions based on the latest economic data.
The IMF anticipates that inflation will reach the Fed's 2% target in the first half of 2025, sooner than the Fed's own projections.
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