“The US central bank is prepared to raise interest rates further if needed and intends to keep borrowing costs high until inflation is on a convincing path toward the Fed’s 2% target. Although inflation has moved down from its peak — a welcome development — it remains too high,” – Federal Reserve Boss, Jerome Powell
Powell said in a speech Friday at the US central bank’s annual conference in Jackson Hole, Wyoming. “We are prepared to raise rates further if appropriate, and intend to hold policy at a restrictive level until we are confident that inflation is moving sustainably down toward our objective.”
Jerome Powell, the chairman of the US Federal Reserve, announced that the central bank plans to persist in raising interest rates “if appropriate,” citing the ongoing presence of “too high” inflation.
Speaking at the annual Jackson Hole symposium in Wyoming, Powell acknowledged a reduction in the pace of price hikes from their peak, yet emphasized that inflation remains above the Fed’s targeted 2%.
Powell signals extended interest rate increases
Powell’s speech emphasized the potential for further increases in interest rates, which could also endure for an extended period.
As of now, the US has experienced an inflation rate of 3.2% in the year leading up to July. This stands alongside a significant interest rate of 5.25%, the highest in 22 years, following a sequence of 11 consecutive rate hikes since early 2022.
The chairman outlined the central bank’s strategy, affirming, “We are prepared to raise rates further if appropriate, and intend to hold policy at a restrictive level until we are confident that inflation is moving sustainably down toward our objective.”
Powell also mentioned that the Fed will proceed with caution due to various factors, including the global effects of Russia’s ongoing invasion of Ukraine, and the persistent volatility of food and energy prices.
He hinted at the possibility of further rate increases while awaiting additional data to inform policy decisions.
Market experts weighed in on Powell’s remarks, with economists like Cary Leahey from Columbia University noting that an unexpectedly resilient economy may necessitate higher rates to align with the 2% inflation goal.
Powell stressed that there is still “substantial further ground to cover” before reaching that target.
The chairman highlighted the housing sector’s resurgence, indicating a potential need for further tightening of monetary policy.
Powell also stressed that before interest rates could be eased, the labor market must exhibit signs of softening, as the ongoing wage growth contributes to inflation pressures, potentially prolonging the need for higher interest rates.