US Federal Reserve Chairman Jerome Powell spoke for about nine minutes in his much-anticipated appearance at the Jackson Hole economic policy symposium on Friday, but it was sufficient to send a clear message. Financial markets tumbled and the widely tracked S&P 500 cracked by over 3.3 per cent. With some early signs of relatively low inflation, partly because of a decline in commodity prices, markets had started believing that the Fed would not tighten policy to the extent anticipated earlier. One of Mr Powell’s recent statements was also interpreted in the same vein. But this time he was more direct and clearly underlined that restoring price stability would take time and the Fed would use its tools “forcefully to bring demand and supply into better balance”.
This would undoubtedly impose a cost on the economy in the short run. Renewed clarity in the Fed’s stance warrants adjustments in global financial markets.
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