Fed Chair says inflation remains too high to consider cutting interest rates.
Federal Reserve Chairman Hints at More Interest Rate Hikes
During a speech in Jackson Hole, Wyoming, Chairman of the Federal Reserve Jerome Powell suggested that additional interest rate hikes may be on the horizon.
Powell, along with other central bank officials and experts in finance and economics, gathered for the annual Jackson Hole Economic Symposium to discuss the state of the economy and the Federal Reserve’s efforts to combat inflation. According to Powell, the United States may not have reached its peak interest rate yet.
“We have tightened policy significantly over the past year. Although inflation has moved down from its peak — a welcome development — it remains too high,” Powell said. “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.”
In an effort to bring inflation in line with the Federal Reserve’s 2% target rate, the central bank has raised the federal funds rate to 5.5%, the highest it has been in over two decades. Additionally, the Fed has implemented measures to reduce the circulation of money and slow down economic activity. However, despite these efforts, the economy continues to outperform expectations.
“So far this year, GDP growth has exceeded expectations and its long-term trend, and consumer spending has been particularly strong. Furthermore, after a significant slowdown, the housing sector is showing signs of recovery,” Powell stated. “If there is further evidence of persistently above-trend growth, it could jeopardize progress on inflation and necessitate further tightening of monetary policy.”
Powell’s concerns about the future of the American economy were echoed by other prominent central bank officials and experts at the conference.
Kristin Forbes, a professor at the Massachusetts Institute of Technology, compared the Fed’s current position to a hiker attempting to reach the summit of a mountain without any trail markers.
“You know where you want to go. You know where the summit is, but there are no more markers and you have to feel your way,” Forbes explained to The Wall Street Journal. “And even though you’ve covered most of the distance, that can be the hardest part. It’s steeper. It’s rockier.”
Cleveland Fed President Loretta Mester acknowledged that the central bank is nearing a favorable point, but suggested that at least one more interest rate hike may be necessary before reaching the peak.
“We are very close to a good point, and then we’ll let the economy tell us when interest rates can start to come back down again,” Mester told WSJ.
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