Powell cautions Fed may raise rates further due to excessive inflation.
Federal Reserve Chair Warns of Continued Inflation Risks
Federal Reserve Chair Jerome Powell raised the possibility of additional monetary policy conditions in the central bank’s fight against inflation, warning that prices remain too high.
Speaking at the annual Jackson Hole economic symposium on Aug. 25, Mr. Powell reiterated that the institution is prepared to keep raising interest rates if appropriate. Even without any extra rate hikes, the Fed plans to hold the benchmark fed funds rate at a restrictive level until policymakers are confident that inflation is trending downward to the Fed’s 2 percent target rate.
But while inflation is coming down from its peak in June 2022, Mr. Powell believes it is too early to declare victory.
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“The lower monthly readings for core inflation in June and July were welcome, but two months of good data are only the beginning of what it will take to build confidence that inflation is moving down sustainably toward our goal,” Mr. Powell said in his prepared remarks.
The Fed Chair repeated what the July Federal Open Market Committee (FOMC) policy minutes stated: Officials are aware of the risk of overtightening monetary policy.
“Doing too little could allow above-target inflation to become entrenched and ultimately require monetary policy to wring more persistent inflation from the economy at a high cost to employment. Doing too much could also do unnecessary harm to the economy,” he stated.
“As is often the case, we are navigating by the stars under cloudy skies,” he said.
The Fed will need to “proceed carefully” when assessing incoming economic data and the evolving outlook and risks, Mr. Powell added.
It will be a delicate balance for the rate-setting Committee because there are signs of slowing economic conditions and renewed price pressures.
According to the Cleveland Fed Bank’s Inflation Nowcasting model estimate, the annual inflation rate is expected to rise for the second consecutive month to 3.8 percent. The core consumer price index (CPI), which omits the volatile energy and food sectors, is anticipated to ease to 4.5 percent.
Since the Fed launched its quantitative tightening cycle in March 2022, the FOMC has pulled the trigger on 11 rate hikes totaling 500 basis points.
There was little reaction in the U.S. financial markets, with the leading benchmark indexes flat in early trading.
The U.S. Treasury market was mostly up at the end of the trading week, with the benchmark 10-year yield adding one basis point to 4.245 percent. The 2-year yield picked up 5 basis points to 5.069 percent.
What Others Are Saying
Heading into Mr. Powell’s speech, other U.S. central bank officials have weighed in on the monetary policy debate.
Philadelphia Fed Bank President Patrick Harker thinks that the institution has “probably done enough” to combat rampant inflation, telling CNBC from Jackson Hole that he would prefer to “keep rates high for a while.”
“I am in the camp of, let the restrictive stance work for a while. That should bring inflation down,” Mr. Harker told the business news network.
He has presented this position before, saying at a recent event that the Fed should leave the policy rate where it is and determine how much 22-year-high interest rates are traveling throughout the economy.
Minneapolis Fed Bank President Neel Kashkari is not willing to declare mission accomplished on the inflation front just yet.
Speaking at the APi Group’s Global Controllers Conference earlier this month, Mr. Kashkari acknowledged that there could still be additional tightening ahead because inflation is “still too high.”
“The question on my mind is, have we done enough to actually get inflation all the way back down to our 2 percent target? Or do we have to do more?” he said. “Are we done raising rates? I’m not ready to say that we’re done.”
Writing in a Washington Post op-ed on Au
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