Aug 25, 2023 - Economy & Business

Powell warns of more interest rate hikes as inflation remains high

Federal Reserve chair Jerome Powell at the 2023 Jackson Hole economic symposium in Moran, Wyoming. Photo: David Paul Morris/Bloomberg via Getty Images

Federal Reserve chair Jerome Powell on Friday warned that inflation was still far too high, and suggested the central bank may need to raise interest rates further in coming months.

Why it matters: Despite recent data that shows inflation receding, the Fed is not declaring victory with signs that price pressures could reemerge.

What they're saying: "Although inflation has moved down from its peak—a welcome development—it remains too high," Powell will tell the Jackson Hole Symposium in a highly anticipated speech. The annual gathering of central bankers and economists is hosted by the Kansas City Fed.

  • "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."

Where it stands: The remarks come after a string of favorable economic data that showed inflation cooling alongside a solid jobs market — a combination few economists expected, especially after an aggressive rate-hiking campaign the begun more than a year ago.

Yes, but: Powell acknowledged that progress, but warned of potential risks that may force the Fed hike rates more down the line. The Fed set out to slow the economy, but recent data has pointed to far more resilience.

  • "We are attentive to signs that the economy may not be cooling as expected," Powell said, noting that economic growth has been stronger than expected and "recent readings on consumer spending have been especially robust."
  • "Additional evidence of persistently above-trend growth could put further progress on inflation at risk and could warrant further tightening of monetary policy," Powell said.

What to watch: The speech, watched closely by economists and financial markets for clues about what's next for monetary policy, did not send a strong signal about the Fed's immediate next moves.

  • Financial markets largely anticipate the Fed will hold off on raising rates at its policy meeting in September. What comes next is more unclear and will depend on the economic data ahead.
  • "We will proceed carefully as we decide whether to tighten further or, instead, to hold the policy rate constant and await further data," Powell said.

Flashback: The speech included throwback lines to past Powell Jackson Hole speeches. "As is often the case, we are navigating by the stars under cloudy skies," Powell said, invoking a framework he used in his 2018 speech.

  • He concluded by saying "we will keep at it until the job is done," repeating language from last year's speech that subtly invoked former Fed chief Paul Volcker, whose memoir is titled "Keeping At It."
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