JACKSON HOLE, Wyoming: The US Federal Reserve is prepared to raise interest rates further if needed and intends to keep them high until inflation is on a convincing path toward its 2% target, chairman Jerome Powell said on Friday.
“Although inflation has moved down from its peak — a welcome development — it remains too high,” Powell said in a highly anticipated address to an annual symposium of economic and monetary policy makers in the Wyoming resort town of Jackson Hole.
He noted how declines in the pace of price increases over the past year were balanced against the surprising overperformance of the US economy.
Powell said Fed policymakers would “proceed carefully as we decide whether to tighten further”, but also made clear that the central bank had not yet concluded that its benchmark interest rate is high enough to be sure that inflation returns to the 2% target.
“It is the Fed’s job to bring inflation down to our 2% goal, and we will do so,” Powell said. “We have tightened policy significantly over the past year.
“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 that context, recent data has raised a new concern, he said.
“We are attentive to signs that the economy may not be cooling as expected,” with consumer spending “especially robust” and the housing sector possibly rebounding, Powell said.
The economy continues to grow above trend, Powell said, and if that continues “it could put further progress on inflation at risk and could warrant further tightening of monetary policy”.
His remarks showed the Fed wrestling with conflicting signals from an economy in which inflation has by some readings slowed a lot without much cost to the economy — a good outcome, but one that has raised the possibility that Fed policy is not restrictive enough to complete the job.
It was difficult, he said, to know with precision the degree to which the Fed’s current 5.25% to 5.5% benchmark had cleared the “neutral” rate of interest needed to slow the economy, and therefore hard to assess just where policy stands.
Powell repeated what has become a standard Fed diagnosis of inflation progress — with a pandemic-era jump in goods inflation easing and a decline in housing inflation “in the pipeline”, but concern that continued consumer spending on a broad array of services and a tight labour market may make a return to 2% difficult.
A recent decline in measures of underlying inflation, stripped of food and energy prices, “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”, Powell said.
“Given the size” of the broader services sector, excluding housing, “some further progress will be essential”, the Fed chief said, and it will likely require an economic slowdown to deliver it.
“Restrictive monetary policy will likely play an increasingly important role. Getting inflation sustainably back down to 2% is expected to require a period of below-trend economic growth as well as some softening in labour market conditions,” Powell said.
“Two percent is and will remain our inflation target,” Powell said. “We are committed to achieving and sustaining a stance of monetary policy that is sufficiently restrictive to bring inflation down to that level over time.”