Federal Reserve Chairman Jerome Powell acknowledged recent signs of easing inflation, but said Thursday the central bank will remain “firm” in its commitment to its 2% mandate.Thank you for reading this post, don't forget to subscribe!
In a widely anticipated speech at the Economic Club of New York, Powell stopped short of committing to a specific policy path, but gave no indication he was leaning toward raising interest rates further.
As Powell said, futures market traders have written off any possibility of a rate hike in November and have also reduced the chances of a rate hike in December. He acknowledged progress in bringing inflation back to manageable levels but stressed caution in pursuing the central bank’s targets.
“Inflation is still very high, and a few months of good data are only the beginning to build confidence that inflation is continuing to decline toward our goal,” Powell said in prepared remarks. “We cannot yet know how long these lower readings will persist, or where inflation will settle in the coming quarters.”
“While the path is likely to be bumpy and take some time, my colleagues and I are united in our commitment to getting inflation permanently below 2 percent,” Powell said.
The speech comes with questions about where the Fed is headed next after repeatedly raising interest rates with the aim of reducing inflation. Stocks rose after Powell spoke and the 10-year Treasury yield hit its highest level for the session.
Powell said he doesn’t think rates are too high yet.
“Does it seem like the policy is too strict right now? I would have to say no,” he said. Still, he added that “high interest rates are difficult for everyone.”
Powell noted progress toward the Fed’s dual goals.
Federal Reserve Chairman Jerome Powell speaks during a meeting of the Economic Club of New York in New York City, US on October 19, 2023.
Brendan McDiarmid | reuters
In recent days, data has shown that while inflation remains well above the target rate, the pace of monthly growth has slowed and the annual rate has slowed from more than 9% to 3.7% in June 2022.
“The data in recent months reflects ongoing progress towards both of our twin mandate goals – maximum employment and stable prices,” he said.
The start of the speech was delayed by protesters from the group Climate Defense, who took over the stage at the club’s dinner and held up signs saying “the Fed is burning” surrounded by the words “money, the future and the planet.”
After a brief delay, Powell said that ultimately achieving the Fed’s goal may require slowing the labor market and economic growth.
“Nevertheless, the record shows that a sustainable return to our 2 percent inflation target will require a period of below-trend growth and some further softening of labor market conditions,” Powell said.
Fed officials are using interest rate hikes in an effort to address the supply-demand imbalance in the jobs market. The Fed has raised rates 11 times since March 2022, for a total of 5.25 percentage points. Coming from near-zero levels of the fed funds rate, it has taken the benchmark rate to its highest level in nearly 22 years.
“We are a long way from the effective lower bound and the economy is handling it well,” Powell said.
The comments come on the same day that initial jobless claims reached their lowest weekly level since the beginning of 2023, indicating that the labor market is still tight and could put upward pressure on inflation.
Strong job creation in September and a slowing pace of layoffs could put inflation progress at risk.
“Additional evidence of sustained upward-trending growth, or that labor market tightness is no longer easing, could jeopardize further inflation progress and require further tightening of monetary policy,” he said. “
In recent days, other Fed officials have said they think the Fed can remain patient from here. Even some members who support tight monetary policy have said they think the Fed may hold off on raising rates at least for now, while they weigh the delayed effects of a rate hike on the economy. Looking at.
The market widely expects the Fed to hold off on additional rate hikes, although questions remain over when officials might start cutting rates.
Powell was non-committal on the future of the policy.
Given the uncertainties and risks, and how far we have come, the Committee is proceeding cautiously. “We will make decisions about the extent of additional policymaking and how long the policy will remain restrictive based on the totality of incoming data, the emerging outlook, and the balance of risks.”