Fed's Powell says it's 'premature' to pause interest rate hikes: 'A way to go'

Federal Reserve Chairman Jerome Powell on Wednesday dashed any hopes that investors had for an interest rate hike pivot.

Speaking at a press conference after the Fed's two-day meeting – during which policymakers delivered the fourth straight 75-basis-point rate increase – Powell struck a surprisingly hawkish tone.

"Let me say this," he told reporters. "It is very premature to be thinking about pausing. When people hear lags, they think about pauses. It's very premature, in my view, to talk about pausing our rate hikes. We have a way to go."

Powell's comments came in response to a new, eye-catching sentence in the Fed's updated statement that Wall Street interpreted to mean the central bank was considering slowing its aggressive rate hike path in coming meetings.

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"The Committee anticipates that ongoing increases in the target range will be appropriate in order to attain a stance of monetary policy that is sufficiently restrictive to return inflation to 2 percent over time," the statement said.

Officials also noted they will take into consideration "the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation and economic and financial developments" when determining how high to raise rates in the coming months.

But Powell indicated that the Fed will raise rates even higher than it previously projected as it struggles to wrestle stubbornly high inflation under control.

"We still have some ways to go," he said. "And incoming data since our last meeting suggests that the ultimate level of interest rates will be higher than previously expected."

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With the benchmark federal funds rate now at a range of 3.75% to 4% – well into restrictive territory – Powell said the focus on rate hike speed is less important than the question of how long rates should be held in restrictive territory.

"And that’s why I’ve said at the last two press conferences that at some point it will become appropriate to slow the pace of increases," he said. "So, that time is coming, and it may come as soon as the next meeting or the one after that. No decision has been made. It is likely we’ll have a discussion about this at the next meeting, a discussion."

The Wednesday meeting comes amid increased uncertainty about the health of the economy: inflation remains painfully high, and the labor market is still abnormally tight, but both the housing and manufacturing sectors are weakening.

The Fed's efforts to cool the economy and wrestle inflation closer to its 2% target marks the most aggressive tightening campaign since the 1980s.

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But the fight against inflation carries a potential risk of recession, and a growing number of economists and Wall Street firms are forecasting a downturn this year or next as the Fed tries to thread the needle between curbing inflation without crushing growth.

"The Fed faces a three-pronged challenge that requires an almost impossible reconciliation of price stability, maximum sustainable employment and financial stability as the American economy slips into recession," said Joseph Brusuelas, RSM chief economist.