Fed Chairman Jerome Powell confirmed the battle against inflation to cause “some pain”

Federal Reserve Chairman Jerome Powell warned of raising interest rates to curb inflation. This would lead to unfortunate consequences for the U.S. households. 

In a speech at the Jackson Hole symposium, Powell noted that the path to tame inflation would not be easy, but the central bank "will make every effort to restore consumer prices."

The measures are expected to have a direct impact on the economic development and the U.S. labor market. 

"With higher interest rates, slower economic growth, and changing employment conditions designed to lower a recession risk, businesses and households would also be affected," the Fed chair said.

Powell added the need to restrain inflation with the greatest possible dispatch, as price stability provides "the bedrock of the country's economy."

Due to high inflation, well above the usual 2%, the central bank intends to tighten monetary policy. At the same time, the size for the interest rate surge is still questionable.

“These moves could represent a 75 basis point rate hike,” said Jay Hatfield, chief executive of Infrastructure Capital Management.

The stock market reacted negatively to the Fed statements: a fall in major indices was recorded, including Dow Jones Industrial, S&P 500, and Nasdaq Composite. The reason is the upcoming prospects of higher interest rates and their associated consequences, meaning high unemployment, great financial strain, as well as a slowdown in economic growth.

“These are the distressing costs of lowering inflation. However, a setback in restoring price stability would imply far more pain,” Powell noted, pointing to the precedents of high inflation in U.S. history, back in the 1970s and 1980s.

Control over inflation is of paramount importance, as consumer expectations may also rise. The longer the present inflation spikes continue, the more likely the expectations will put down roots. Therefore, the economic well-being could decrease, with prices fluctuating.