Jerome Powell, chair of the Federal Reserve, stated that the US central bank is prepared to hike interest rates further if necessary and expects to maintain high borrowing costs until inflation is headed toward the Fed’s 2% target.
“Although inflation has moved down from its peak — a welcome development — it remains too high,” Powell said in the text of 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.”
The Fed chairman praised the US economy’s slower price increases due to tighter monetary policy and further easing supply restrictions following the pandemic. The process, he added, “still has a long way to go, even with the more favorable recent readings.”
Powell also said that the Fed might maintain rates at its upcoming September meeting, as markets anticipated.
“Given how far we have come, at upcoming meetings, we are in a position to proceed carefully as we assess the incoming data and the evolving outlook and risks,” he said.
As Powell spoke, Treasury rates initially fell, with the policy-sensitive two-year yield remaining stable at roughly 5.04%. To 4.225%, the 10-year yield decreased. Based on swap contracts, investors maintained their expectations for a rate increase at the Fed’s meeting from October 31 to November 1 at about 60%.
The comments were consistent with Powell’s persona and style of communication throughout 2023: He is solely committed to restoring price stability, and more tightening is still an option if necessary to return to 2%.
Fresh Phase: A new stage in the effort by policymakers to drive inflation back to the Fed’s 2% objective has begun. After swift rises in interest rates in 2022, Powell and his coworkers have slowed the pace this year and hinted that they may be nearing the end of rate hikes. The current issue is how long they remain restricted and how the economy does under those circumstances.
