Plastic letters arranged to read "Inflation" are placed on a US dollar banknote in this illustration taken on June 12, 2022 (Photo: Reuters/Dado Ruvic/Illustration)

While failing to fight the current 40-year high prices in the US would be harmful, controlling high inflation would also inflict "pain" on families and businesses in the country, Federal Reserve Chair Jerome Powell said Friday in a speech to global policymakers.

In the annual gathering of central bankers in Wyoming's Jackson Hole, Powell spoke and did not hesitate or leave room for doubt about the central bank's course, vowing to act "forcefully."

He warned the US is likely to slow for a continuous and extended period, and the strong job market will suffer in order to decrease the prices, describing the situation as the "unfortunate costs of reducing inflation."

The Fed has been on a combative campaign to higher interest rates, and Powell made it clear in his speech that the fight against inflation is not over.

"Restoring price stability will take some time and requires using our tools forcefully to bring demand and supply into better balance," he said, adding, "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."

"But a failure to restore price stability would mean far greater pain."

Modest signs of slowing and easing price pressures in the world's largest economy stimulated hope in financial markets that the central bank might ease up on its aggressive rate hikes, and maybe even begin next year to reverse course.

Powell doused those hopes, however, clarifying that Fed policy and the benchmark borrowing rate will have to remain "sufficiently restrictive" to return inflation to its 2% target.

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Improving data

Supply chain issues have continued and were worsened by both a series of Covid lockdowns in China and the war in Ukraine, leading to soaring prices worldwide.

The Fed has hiked rates several times since, in a battle aiming to contain the red-hot inflation in the US, which topped 9% in June.

Powell reiterated that another hike of three-quarter points could be suitable at the September policy meeting, but recent data showed signs of a slowing in price increases.

The Fed's preferred inflation measure, the personal consumption expenditures (PCE) price index, fell 0.1% in July, a dramatic slowdown from the 1.0% surge in June, largely mirroring the recent sharp retreat in global oil prices.

The PCE price index slowed to 6.3% over the last 12 months, as per the reports of the Commerce Department.

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Powell expressed his discomfort, saying, "While the lower inflation readings for July are welcome, a single month's improvement falls far short of what the Committee will need to see before we are confident that inflation is moving down."

He mentioned the experience of one of his predecessors, Paul A. Volcker, the Fed Chairman who waged war on inflation and said officials cannot escape their responsibility.

"We must keep at it until the job is done," he said, urging to avoid any "premature" easing of policy.

Former Bank of England board member Adam Posen, who manages Washington's Peterson Institute for International Economics, said he expects the benchmark lending rate to reach 4% by February, but the Fed will be "willing to go further if needed, with the chances of a reversal in the 2023 year "very, very low."