MNI: Powell Warns Fed Prepared To Tighten Further If Needed

Federal Reserve Chair Jerome Powell said Friday the U.S. central bank is prepared to raise interest rates again if needed even as he acknowledged "considerable progress" in reducing high inflation while maintaining a strong labor market.

His remarks come just hours before the FOMC begins its communications blackout period ahead of the December meeting, in which officials are expected to hold rates steady in a 5.25%-5.5% range.

"It would be premature to conclude with confidence that we have achieved a sufficiently restrictive stance, or to speculate on when policy might ease. We are prepared to tighten policy further if it becomes appropriate to do so," the Fed chair told Spelman College students.

"Like most forecasters, my colleagues and I anticipate that growth in spending and output will slow over the next year, as the effects of the pandemic and the reopening fade and as restrictive monetary policy weighs on aggregate demand. The FOMC is strongly committed to bringing inflation down to 2% over time, and to keeping policy restrictive until we are confident that inflation is on a path to that objective."

The Fed would continue to make decisions "meeting by meeting, based on the totality of the incoming data," he said.

CONSIDERABLE PROGRESS

The Fed chair assured Spelman students the strong labor market holds a lot of opportunity for new grads, noting that while the unemployment rate has risen to 3.9%, it is still "very low by historical standards."

"Today, labor market conditions remain very strong, and the economy is returning to a better balance between the demand for and supply of workers," he said. "The pace at which the economy is creating new jobs remains strong, and has been slowing toward a more sustainable level."

Wage growth "remains high but has been gradually moving toward levels that would be more consistent with 2% inflation over time, and real wages are growing again as inflation declines," he said.

Meanwhile, inflation has fallen to 3%, but core inflation is still 3.5%, "well above our 2% objective."

"While the lower inflation readings of the past few months are welcome, that progress must continue if we are to reach our 2% objective," Powell said.

"As the demand- and supply-related effects of the pandemic continue to unwind, uncertainty about the outlook for the economy is unusually elevated," he said. "Having come so far so quickly, the FOMC is moving forward carefully, as the risks of under- and over-tightening are becoming more balanced."