Federal Reserve Chairman Jerome H. Powell pledged during a closing speech that his central bank would stick to its efforts to prevent rapid inflation “until the job is done” and said officials would consider raising interest rates further. are ready for. if needed.
Mr Powell, who was speaking at the Federal Reserve Bank of Kansas City’s annual Jackson Hole conference in Wyoming on Friday, said the Fed would “proceed cautiously” as it decides whether to make further policy adjustments after a year and a half . had raised interest rates sharply.
But even though Mr. Powell stressed that the Fed is trying to balance the risk of doing too much and doing too little of too much damage to the economy, he was careful that the recent slow Don’t let speed win. inflation. His speech highlighted a key point: officials want to see more progress to convince them that they are indeed getting price increases under control.
“The message is the same: It’s the Fed’s job to bring inflation down to our 2 percent target, and we will do it,” Mr. Powell said, comparing his speech to harsher comments made in Jackson Hole last year. gathering.
Central bankers have recently raised interest rates from near zero to a range of 5.25 to 5.5 per cent till March 2022 to cool the economy and bring down inflation. They are keeping the door open to the possibility of another rate hike, and have made clear that they expect to keep interest rates high for some time.
Mr. Powell kept that message alive on Friday.
“We stand ready to raise rates further if appropriate, and intend to keep policy at a restrictive level until we are confident that inflation is on a sustained downward trend towards our objective,” he added.
But the Fed chairman said that “we are in a position to proceed cautiously at upcoming meetings as we assess incoming data and the emerging outlook and risks,” and that officials “will decide whether to tighten policy further or to ease further.” Instead, the policy should be maintained.” The rate is stable and await further data.”
This suggests that the central banker is not committed to raising interest rates at its upcoming meeting in September. Instead, they may wait until the end of the year – they have meetings in November and December – before making a decision about whether further increases in borrowing costs are needed. Taking a patient approach will give officials more time to assess how the steps they have already taken are affecting the economy.
“I think this paves the way for a pause at the September meeting and their options remain open after that,” said Laura Rosner-Warburton, senior economist at Macropolicy Perspectives. “We’re close to the top, we could be there, and they’ll proceed with caution.”
Mr. Powell made it clear that the Fed is in no rush to raise rates again, but he remained cautious about further inflation risks.
Price increases have slowed significantly in recent months to around 3 percent, as measured by the Fed’s preferred gauge. That’s still above the Fed’s 2 percent inflation target, though it’s down sharply from last summer’s peak of 7 percent.
And there are signs of stubbornness beneath the surface. After removing food and fuel to look at the underlying trend, the central bank’s favorite inflation gauge is still running at nearly twice the Fed’s target.
“Despite recent more favorable readings, this process still has a long way to go,” Mr Powell said. “We cannot yet know to what extent these lower readings will continue or where underlying inflation will stabilize in the coming quarters.”
This is partly because the Fed is trying to assess how much its policy adjustments are actually affecting the economy and through it inflation.
The Fed’s higher borrowing costs are cutting into demand for cars and homes by making auto loans and mortgages more expensive, and they are likely discouraging business expansion and cooling the job market.
But it’s unclear how severe the Fed’s current policy setting is having an impact on the economy. Rates are well above the level most economists believe is necessary to keep the economy below its potential run rate, but such estimates are subject to error.
Mr. Powell acknowledged on Friday, “There is always uncertainty about the exact level of monetary policy restraint.”
This is especially relevant in the face of recent economic data, which has been surprisingly strong. Consumers are continuing to spend and companies continue to reach higher levels despite the Fed’s onslaught. The flexibility has some economists warning that there is a risk the economy could pick up again while keeping inflation high.
“We are watching for signs that the economy is not slowing down as expected,” Mr. Powell said. “Additional evidence of continued upward-trending growth could put further progress on inflation at risk and may necessitate further tightening of monetary policy.”
Still, Mr. Powell also stressed that it may take time for the economy to respond to policy steps already taken, and that conditions are unusual in the wake of the pandemic: for example, job losses without increasing unemployment. There has been an abnormal amount of decline. ,
“This uncertainty underlines the need for agile policy making,” he added.
However, Mr. Powell carefully avoided any indication that the Fed might take a softer stance on inflation. He dismissed growing speculation among economists that the Fed could — or should — raise its inflation target, making it easier to achieve.
“Two per cent is our inflation target and will remain so,” he said.
And he ended with the same line he used to end his speech at the Jackson Hole gathering last year, in what was seen as an aggressive stance against inflation.
“We will continue with this till the work is completed,” he said.
