• Cooling sky-high inflation will "bring some pain" to firms and households, Fed Chair Jerome Powell said.
  • Failing to slow the price surge, however, "would mean far greater pain," he added.
  • The chair hinted at more rate hikes to come as the Fed strives to bring inflation to its 2% target.

The Federal Reserve is pushing forward in its fight to cool inflation, but the path ahead won't come without some economic discomfort for Americans.

Fed Chair Jerome Powell offered few hints toward the central bank's next policy decisions while speaking Friday at the Fed's annual conference in Jackson Hole, Wyoming. The chair reiterated that price stability is necessary to maintaining a strong labor market, and that the Fed will continue to raise interest rates to cool inflation. Data out earlier in August showed prices climbing 8.5% in the year through July, down from the June peak but still near a four-decade high.

Yet the next phase of policy tightening "will also bring some pain to households and businesses," Powell said. Higher rates slow price growth by lifting borrowing costs and weakening demand. That shows up in the form of higher mortgage rates, pricier loans, more expensive credit-card debt. That will slow overall economic growth and weigh on the job market into 2023. As spending wanes, companies will be more likely to cut jobs and issue smaller raises to workers.

Those side effects aren't appealing, especially with inflation already eating away at most workers' raises. The alternative, however, is far worse, Powell said. 

"These are the unfortunate costs of reducing inflation, but a failure to restore price stability would mean far greater pain," the chair added.

The Fed last raised interest rates in July, lifting its benchmark rate by 0.75 percentage points to a range of 2.25% to 2.5%. That level is largely regarded as "neutral" by central bank officials, meaning it neither stimulates nor restricts the economy.

Though the increases have already lifted borrowing costs throughout the economy, Powell signaled the Fed is nowhere near done with its hiking cycle. The neutral rate is "not a place to stop or pause," the chair said, adding the Fed's next rate decision in September will hinge on "the incoming data and the evolving outlook."

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