[ad_1]
Federal Reserve Chairman Jerome Powell said Thursday that he and his fellow policymakers are encouraged by the slowing pace of inflation but are unsure whether they have done enough to keep the momentum going.
Just over a week after the central bank voted to keep policy rates steady, Powell, speaking to an International Monetary Fund audience in Washington DC, said there could be more work to do in the fight against high Prices.
“The Federal Open Market Committee is committed to pursuing a monetary policy that is sufficiently restrictive to reduce inflation to 2 percent over time; we are not confident that we have reached such a position,” he said in his prepared speech.
For the second time in recent weeks, Powell’s public speech was interrupted by climate protesters. He briefly left the stage before continuing.
The speech comes with inflation still well above the Fed’s long-standing target, but also well below peak levels in the first half of 2022. In a series of 11 rate hikes that marked the most aggressive policy tightening since the start of the 1980s, the committee ruled that the reference interest rate will go from almost zero to a target range of 5.25%-5.5%.
These increases coincided with the Fed’s preferred inflation measure, the main price index for personal consumer spending, falling to 3.7% annually from 5.3% in February 2022. The more widely followed consumer price index peaked above 9% in June this year. last year.
Powell said inflation is “well above” where the Fed would like to see it.
“My colleagues and I welcome this progress, but expect that the process of sustainably returning inflation to 2 percent still has a long way to go,” he said.
Stocks moved lower after the speech, with the Dow Jones Industrial Average falling nearly 200 points. Treasury yields jumped after falling for most of the past three weeks, largely rising after a poorly received auction of 30-year bonds.
“Chairman Powell has issued a warning to investors who are too giddy about the prospect of rate cuts next year,” said Jeffrey Roach, chief economist at LPL Financial. “The Fed will stay true to its mandate and raise rates further if inflation accelerates again.”
As he has emphasized in recent speeches, Powell emphasized that the Fed can nevertheless be cautious now that the risks between doing too much and too little have become better balanced.
“If it becomes appropriate to further tighten the policy, we will not hesitate to do so,” he said. “However, we will continue to act cautiously, which will allow us to address both the risk of being misled by a few good months of data and the risk of too much tightening.”
Markets are largely convinced that the Fed will raise rates.
Futures pricing indicates a less than 10% probability that the FOMC will approve a final rate hike at its December 12-13 meeting, according to the CME Group, even though committee members had planned an additional quarter-percentage-point increase in September before the December 12-13 meeting. end of the year.
Traders expect the Fed to start cutting spending next year, probably around June.
Powell noted the progress the economy has made. Gross domestic product accelerated at a “fairly strong” 4.9% annual rate in the third quarter, although Powell said growth is expected to be “moderate” in coming quarters.
Unemployment remains low, although the unemployment rate has risen half a percentage point this year, a move typically associated with recessions.
But Powell noted that the Fed is “wary” that stronger-than-expected growth could undermine the fight against inflation and “warrant a monetary policy response.”
He also pointed out that improvements in supply chains have helped alleviate inflationary pressures, but “it is not clear how much more will be achieved through additional supply-side improvements. Going forward, more of the progress in reducing inflation may have to come from tight monetary policies that limit growth in aggregate demand.”
The comments are part of a broader presentation he is giving at Jacques Polak’s annual research conference. One broad policy topic he touched on was the challenge of keeping interest rates at levels near zero, where they were before the rise in inflation. Powell said it is “too early” to say whether the zero-rate challenges are “a thing of the past.”
