The US economy’s ongoing strength may necessitate further interest rate hikes, according to Federal Reserve Chair Jerome Powell. In a highly anticipated speech, Powell acknowledged the uncertain economic outlook while noting that the economy has been growing faster than anticipated and consumer spending has remained vigorous. These trends could contribute to persistent inflation pressures. Powell also reaffirmed the Fed’s commitment to maintaining an elevated key rate until inflation is reduced to the central bank’s 2% target. He emphasized, “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.”
During an annual conference of central bankers, Powell’s speech emphasized the complexities surrounding the economy and the intricacy of the Fed’s response. This marked a significant contrast to his remarks from last year’s Jackson Hole conference, when he bluntly cautioned Wall Street that the central bank would continue its campaign of aggressive rate hikes to contain rising prices. Powell also stated that the Fed believes its key rate is sufficiently high to restrain the economy and temper growth, hiring, and inflation. However, he acknowledged the challenge of determining the ideal level of borrowing costs to effectively rein in the economy, stating, “and thus there is always uncertainty” about the efficacy of the Fed’s inflation-reducing policies.
Consequently, Powell stated, “We will proceed carefully as we decide whether to tighten further or, instead, to hold the policy rate constant and await further data.” Since Powell’s speech at last year’s Jackson Hole conference, the Fed has raised its benchmark rate to its highest level in 22 years, currently at 5.4%. Inflation has decreased from its peak of 9.1% in June 2022 to 3.2%, still above the Fed’s 2% target. Following Powell’s speech, the markets initially relinquished most of their morning’s modest gains but remained in positive territory, according to CNBC.
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