- Powell acknowledged recent progress on lowering inflation but said more work is needed, with inflation still too high.
- Powell noted further economic slowdown may be required to sustainably return inflation to the Fed’s 2% target.
- Powell said future policy decisions will be data-dependent based on assessments of progress toward the Fed’s goals.
Federal Reserve Chairman Jerome Powell said Thursday that the central bank would stay resolute in its commitment to its 2% inflation target, even as it acknowledges signs of cooling price increases. Powell evaded committing to a specific policy path in a widely anticipated speech, but gave no indication he was leaning toward pushing interest rates higher.
Powell Acknowledges Progress on Inflation, But More Work Needed
In his remarks, Powell said recent data has shown inflation remains well above the Fed‘s target, but the pace of monthly increases has slowed and the annual rate has come down from over 9% in June to 7.7% currently. “Incoming data over recent months show ongoing progress toward both of our dual mandate goals, maximum employment and stable prices,” Powell said. However, he added that “inflation is still too high and a few months of good data are only the beginning of what it will take to build confidence that inflation is moving down sustainably toward our goal.”
Further Economic Slowdown May Be Needed
Powell noted that the path to lower inflation is likely to be bumpy and take time. He said a sustainable return to the Fed’s 2% goal will probably “require a period of below-trend growth and some further softening in labor market conditions.” The Fed has been using rate hikes in part to try to ease supply-demand imbalances in the job market. Powell said additional evidence of strong economic growth or a persistently tight labor market could warrant further policy tightening.
Powell: Future Policy Depends on Incoming Data
Powell avoided committing to any specific policy path going forward. “Given the uncertainties and risks and how far we have come, the Committee is proceeding carefully,” he said. Powell added that decisions on further rate hikes and how long to keep policy restrictive will depend on incoming economic data, the evolving outlook, and the assessment of risks.
Powell’s speech signaled the Fed’s commitment to bringing down inflation, even if it requires additional economic pain. But he also made clear policy will remain data-dependent based on assessments of progress toward the Fed’s goals. Markets are now pricing in a pause in rate hikes for the time being as the Fed assesses the impact of its actions so far.