MNI: Powell-Fed Will Hike More If Needed, To Stay Restrictive

Federal Reserve Chair Jerome Powell said Friday the central bank stands ready to raise interest rates further if needed because progress on bringing down inflation, while encouraging, is far from complete.

“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,” Powell said in his widely awaited Jackson Hole speech. “There is substantial further ground to cover to get back to price stability.”

Powell said he’s pleased to see inflation coming down but is not yet fully convinced that price pressures are on a sustainable path downward to the Fed’s 2% target, particularly because inflation excluding food and energy prices remains more than twice that level.

“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,” he said.

Powell also indicated he has little appetite for changing the Fed’s inflation target despite market speculation to the contrary. “Two percent is and will remain our inflation target.”

ECONOMY NOT COOLING AS EXPECTED

The Fed chair sounded skeptical about the possibility of a so-called soft landing for the economy where inflation declines without a major hit to jobs. He indicated he’s paying close attention to signs of stronger-than-expected growth and labor market resilience.

“Additional evidence of persistently above-trend growth could put further progress on inflation at risk and could warrant further tightening of monetary policy," he said. "Evidence that the tightness in the labor market is no longer easing could also call for a monetary policy response."

“Getting inflation sustainably back down to 2 percent is expected to require a period of below-trend economic growth as well as some softening in labor market conditions.”

The Fed has raised interest rates at the most aggressive pace since the 1980s, bringing the federal funds rate to a 5.25%-5.5% range from effectively zero in just 18 months.

Powell said some of the effects of that tightening may still be yet to come because monetary policy tends to hit the economy with a lag.

“The wide range of estimates of these lags suggests that there may be significant further drag in the pipeline,” he said. “Given how far we have come, at upcoming meetings we are in a position to proceed carefully as we assess the incoming data and the evolving outlook and risks.”