Resolute in policy decisions: The name of the game for Central Banks

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J. Soedradjad Djiwandono
J. Soedradjad Djiwandono, Emeritus Professor of Economics, Faculty of Economics and Business, Universitas Indonesia, and Adjunct Professor of International Economics, S. Rajaratnam School of International Studies (RSIS), Nanyang Technological University (NTU), Singapore.

Jakarta, IO – US Fed Chair Jerome Powell recently delivered a much anticipated speech, even if it was one for “different reasons for different parties”, at Jackson Hole, Wyoming, a well-known retreat for world central bankers, organized and hosted annually by the Federal Reserve Bank of Kansas City. 

The much-anticipated speech by Chair Powell reiterated the Fed resolution in its decision to tame inflation by repeatedly raising its Fed Fund Rate, by what is an unusual amount of 75 basis points. 

The Fed Chair reiterated that in order to ensure a stable price level, we must maintain a tight monetary stance over time. Historically, all successes have been achieved not by loosening the monetary stance too soon, lest inflation roars back. With the support of all his fellow Governors on the Board, Chair Jerome Powell confidently argued that central banks stay resolute on policy to force inflation down to what is accepted as a “normal rate”. Even with the progress achieved thus far, at a current rate, time will still be needed to recover to a 2 per cent benchmark. He pleaded with society to be patient, accepting that economic pain will still persist for a while longer, as a cost to pay for real stability later on. Nevertheless, the question remains as to whether such a resolute Fed decision will be able to achieve price stability without triggering an economic recession. 

The Stock Markets already reacted, in disagreement, as demonstrated by a 3 per cent drops of both the NYSE and Nasdaq indices, immediately after the Fed Chair speech was aired. Let us wait a while to witness further developments.