Fed’s Jerome Powell warns inflation fight is far from over: NPR

Federal Reserve Chairman Jerome Powell arrives for a meeting of financial regulators in Washington, DC July 28, 2023. Powell warned on Friday that the fight against inflation ‘still has a long way to go’.

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Federal Reserve Chairman Jerome Powell arrives for a meeting of financial regulators in Washington, DC July 28, 2023. Powell warned on Friday that the fight against inflation ‘still has a long way to go’.

Kevin Dietsch/Getty Images

Federal Reserve Chairman Jerome Powell said on Friday that inflation was still too high and warned that restoring price stability would likely require a prolonged period of high interest rates.

Addressing a gathering of economists and central bankers in Jackson Hole, Wyoming, Powell said it was encouraging to see inflation had slowed – from 9.1% last summer to 3.2% last month.

But Powell stressed that some of the improvement may be temporary, and he reiterated that the Fed is determined to bring inflation back to its 2% target.

“The process still has a long way to go,” Powell said. “We are ready to increase [interest] interest rates if appropriate, and intend to keep the policy restrictive until we are confident that inflation is falling sustainably towards our target.

The central bank has already raised its benchmark interest rate from near zero in early 2022 to just over 5.25% today – in the most aggressive series of rate hikes in years. 1980.

Prior to the Jackson Hole rally, investors were betting that the Fed would leave rates unchanged at its next meeting in September. But Powell gave no assurances, saying he and his colleagues would be guided by incoming economic news.

“We’re sailing by the stars under cloudy skies,” Powell said. “We will proceed with caution when deciding whether to tighten further or, on the contrary, keep the policy rate constant and wait for further data.”

A delicate balancing act

Anyone expecting a rapid decline in interest rates would have been disappointed by Powell’s remarks. He pointed to stronger-than-expected GDP growth and robust consumer spending as signs that further rate hikes may be needed.

Rising interest rates weighed heavily on the real estate market. Mortgage rates have risen to their highest level in more than two decades and sales of existing homes have fallen sharply (although sales of new homes are on the rise).

Powell said he and his colleagues have a tricky balancing act as they decide how high interest rates need to be to get prices under control.

“Doing too little could allow above-target inflation to take hold,” he said. “Too much could also hurt the economy unnecessarily.”

A survey of business economists released earlier this week showed nearly three-quarters believe the Fed’s interest rate policy is “about right.” Nearly 70% of forecasters surveyed say they are at least “somewhat confident” in the Fed’s ability to achieve a “soft landing”, curbing inflation without tipping the economy into a recession.