Roundup: Powell says U.S. Fed could raise rates further, but will "proceed carefully"

In a speech at an economic symposium in Jackson Hole, Wyoming, Federal Reserve Chair Jerome Powell stated that the U.S. central bank is ready to increase interest rates in order to bring down inflation towards the 2 percent target. Powell also emphasized the need for caution and careful consideration in making any policy changes.

Powell acknowledged that while inflation has decreased from its peak, it is still considered too high. He mentioned that the Federal Reserve is prepared to further raise rates if necessary, but will maintain a restrictive policy until confident that inflation is sustainably decreasing.

The U.S. economy has shown better-than-expected growth this year, with gross domestic product (GDP) exceeding expectations and consumer spending remaining strong. However, the consumer price index (CPI) rose by 3.2 percent in July compared to the previous year, and the core CPI increased by 4.7 percent, both higher than the Fed’s inflation target.

Powell explained that achieving the 2 percent inflation target will require a period of below-trend economic growth and some softening in labor market conditions. He reiterated the Fed’s commitment to maintaining a high benchmark rate until inflation is reduced to the desired level.

Powell stressed that price stability is crucial for sustained strong labor market conditions that benefit everyone. He expressed determination to continue working towards this objective until it is accomplished.

Powell also called for caution due to the uncertainties and risks the Fed currently faces, including supply and demand dislocations, labor market rebalancing, and the time lag between monetary tightening and its impact on the economy and inflation.

He acknowledged the challenges of navigating in uncertain circumstances, stating that risk management considerations are vital. The Federal Open Market Committee will vote on the monetary policy direction during its next meeting in September.

Powell indicated that the Fed will assess its progress based on the overall data and the evolving outlook and risks. Based on this assessment, the central bank will proceed carefully in determining whether further tightening is needed or if the policy rate should remain constant while awaiting additional data.