Federal Reserve Chairman Jerome Powell said Friday that American households and businesses can expect to experience “pain” as the central bank aims to bring down soaring rates of inflation.

“Restoring price stability will take some time and requires using our tools forcefully to bring demand and supply into better balance,” Powell told policymakers on Friday.

Inflation has soared to its highest levels in four decades.
Inflation has soared to its highest levels in four decades.
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“While higher interest rates, slower growth and softer labor market conditions will bring down inflation, they will also bring some pain to households and businesses.”

Powell added: “These are the unfortunate costs of reducing inflation.”

Powell told central bankers at their annual symposium in Jackson Hole, Wyoming, that the Fed will likely impose more interest rate hikes in the months ahead in hopes of getting inflation under control.

He warned that “a failure to restore price stability would mean far greater pain.”

Investors will likely be disappointed by Powell’s speech since they were hoping that he might signal more moderation in monetary policy.

The Fed chair made clear that he expects rates to remain at levels that should slow the economy “for some time.”

After hiking its key short-term rate by three-quarters of a point at each of its past two meetings, part of the Fed’s fastest pace of rate increases since the early 1980s, Powell said the Fed might ease up on that pace “at some point” — suggesting that any such slowing isn’t near.

The stock market registered losses in reaction to Powell’s speech.

The Dow Jones Industrial Average fell by more than 400 points — or 1.24% — while the Nasdaq dropped by nearly 2% on Friday.

On Wall Street, investors reacted with disappointment to Powell's speech.
On Wall Street, investors reacted with disappointment to Powell’s speech.
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The S&P 500 was down 1.55%.

“In essence, Powell is clearly stating that right now, fighting inflation is more important than supporting growth,” Jeffrey Roach, the chief economist for LPL Financial, told The Post.

Roach predicted that since “supply chains are consistently improving,” that should “continue to bring inflation rates down.”

He thinks the Fed will hike interest rates by 50 basis points in September and then continue to raise them by increments of 25 basis points in subsequent meetings.

Since March, the Fed has implemented its fastest pace of rate increases in decades to combat inflation, which has punished households with soaring costs for food, gas, rent and other necessities.

The central bank has lifted its benchmark rate by 2 full percentage points in just four meetings, to a range of 2.25% to 2.5%.

“Given low levels of unemployment and relatively high levels of consumers’ savings, it is going to take time for inflation to come back down to the Fed’s target and markets have been on a roller-coaster ride this year, attempting to handicap what the impact will be to the economy and to corporate profits,” Chris Zaccarelli, chief investment officer for Charlotte-based Independent Advisor Alliance, told The Post.

Americans have been paying higher prices for food in recent months.
Americans have been paying higher prices for food in recent months.
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“We would be grateful for the significant rally that we’ve had over the past two months, but be cautious at this point as it’s not entirely clear that the bottom is in for this cycle, let alone for 2022,” he said.

“There will be more volatility to come in the next few months, so caveat emtor.”

With Post wires

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