Federal Reserve Chair Jerome Powell signaled the US central bank is likely to keep raising interest rates and leave them elevated for a while to stamp out inflation, and he pushed back against any idea that the Fed would soon reverse course.
“Restoring price stability will likely require maintaining a restrictive policy stance for some time,” Powell said Friday in remarks prepared for the Kansas City Fed’s annual policy forum in Jackson Hole, Wyoming. “The historical record cautions strongly against prematurely loosening policy.”
He said restoring inflation to the 2% target is the central bank’s “overarching focus right now” even though consumers and businesses will feel economic pain. He reiterated that another “unusually large” increase in the benchmark lending rate could be appropriate when officials gather next month, though he stopped short of committing to one.
“Our decision at the September meeting will depend on the totality of the incoming data and the evolving outlook,” he said.
Prior to Powell’s speech, investors saw the odds of a half-point or another three-quarter point hike at the Fed’s Sept. 20-21 gathering as roughly even.
“Restoring price stability will take some time and requires using our tools forcefully to bring demand and supply into better balance,” Powell said in remarks that were set to be live-streamed for the first time from inside the lodge where the event has been held since 1982.
Other Fed speakers in recent days have also pushed back against expectations, priced into futures markets, that the Fed would raise rapidly to a restrictive policy stance and then begin to ease.
Restoring price stability will require a “sustained” period of below-trend growth and a weaker labor market, Powell said. “While higher interest rates, slower growth, and softer labor market conditions will bring down inflation, they will also bring some pain to households and businesses,” he said.
Powell’s remarks at the retreat, which gathers top policy makers from around the world, come as US central bankers confront the highest inflation in 40 years. Officials were slow to spot the risk and are now moving aggressively to keep prices from accelerating further. Officials raised rates by 75 basis points at their last two meetings and signaled the same could be on the table again when they gather next month.
Critics have slammed the Fed for failing to anticipate the inflationary surge, which the Fed initially viewed as transitory. Powell told the conference in his address a year ago that price pressures were limited to a relatively narrow group of goods and services. But within months it was spreading and by the time the Fed began raising rates from near zero inflation was already three times their 2% target.