MNI: Powell Touts Progress On Inflation, Jobs Before Nov Meet

The Federal Reserve will "carefully" consider whether to raise interest rates further and how long to keep them high, given "very favorable" decline in inflation over the summer, indications that the labor market is cooling and the likelihood of more "meaningful tightening" still filtering through from past increases, Fed Chair Jerome Powell said Thursday.

Significantly tighter financial conditions in recent months, driven by a surge in longer-term bond yields, can also affect economic activity, employment and inflation, he said.

"Persistent changes in financial conditions can have implications for the path of monetary policy," Powell said.

"Given the uncertainties and risks, and how far we have come, the committee is proceeding carefully," Powell said in remarks prepared for the Economic Club of New York. "We will make decisions about the extent of additional policy firming and how long policy will remain restrictive based on the totality of the incoming data, the evolving outlook, and the balance of risks."

MAKING PROGRESS

Economic data show progress toward both of the Fed's goals of maximum employment and stable prices after the FOMC raised its benchmark fed funds rate by 5-1/4 percentage points over the past 18 months, Powell said.

PCE inflation, the Fed's preferred measure of consumer price growth, is estimated to fall to 3.5% in September from a 7.1% peak, while core inflation will likely land at 3.7% from a high of 5.6%, he said. Three- and six-month averages of core inflation are now running below 3%.

The labor market is also finally cooling as a growing supply of workers is helping to meet elevated demand by firms. Surveys of workers and employers show a return to pre-pandemic levels of tightness, and indicators of wage growth show "a gradual decline toward levels that would be consistent with 2% inflation over time," Powell said.

Growth has consistently surprised to the upside this year and declining inflation has not come at the cost of meaningfully higher unemployment, "a highly welcome development," Powell said.

"The stance of policy is restrictive, meaning that tight policy is putting downward pressure on economic activity and inflation," he said. "Given the fast pace of the tightening, there may still be meaningful tightening in the pipeline."

UNCERTAINTIES

Forecasters expect GDP to come in very strong for the third quarter before cooling off in the fourth quarter and next year, and history suggests a sustainable return to 2% inflation will likely require below-trend growth and some further softening in labor market conditions, Powell said.

Inflation is still too high, and "a few 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.

Geopolitical tensions are also "highly elevated" and pose important risks to global economic activity, he said.

"My colleagues and I are committed to achieving a stance of policy that is sufficiently restrictive to bring inflation sustainably down to 2% over time, and to keeping policy restrictive until we are confident that inflation is on a path to that objective," he said.