Fed's Powell warns of inflation 'head fakes,' signals more rate hikes are possible
Jerome Powell says Fed 'not confident' policy is tight enough for 2% inflation
TrendMacro CIO Don Luskin argues the Fed is still 'pretending' the U.S. has an inflation problem, even though it's largely been conquered, on 'Making Money.'
Federal Reserve Chair Jerome Powell on Thursday struck a cautious note about the central bank's fight against inflation, warning that it is premature to declare victory and that additional rate hikes may be warranted.
"We know that ongoing progress toward our 2% goal is not assured: Inflation has given us a few head fakes," Powell said in remarks prepared for delivery at an International Monetary Fund conference in Washington, D.C. "If it becomes appropriate to tighten policy further, we will not hesitate to do so."
He said that policymakers remain committed to returning inflation to their 2% target, but are "not confident that we have achieved such a stance."
Powell's comments come one week after the Fed voted to hold interest rates steady at a range of 5.25% to 5.5%, the highest level in 22 years. Officials are now trying to figure out whether they have tightened monetary policy enough, or whether they need to raise rates higher in order to crush stubborn inflation.
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Federal Reserve Chair Jerome Powell speaks during a news conference on interest rates, the economy and monetary policy actions at the Federal Reserve Building in Washington, D.C., on June 15, 2022. (OLIVIER DOULIERY/AFP via Getty Images / Getty Images)
While inflation has cooled considerably in recent months, it remains up 3.7% compared with the same time a year ago, according to the most recent Labor Department data.
"My colleagues and I are gratified by this progress but expect that the process of getting inflation sustainably down to 2% has a long way to go," Powell said.
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Policymakers have raised interest rates sharply over the past year, approving 11 rate increases in the hopes of crushing inflation and cooling the economy. In the span of just 16 months, interest rates surged from near zero to above 5%, the fastest pace of tightening since the 1980s.
The Fed is scheduled to meet just one more time this year, in December. Investors widely agree the central bank will hold rates steady next month, despite the hawkish overtures by Powell on Thursday, according to the CME Group's FedWatch tool, which tracks trading.
| Ticker | Security | Last | Change | Change % |
|---|---|---|---|---|
| I:DJI | DOW JONES AVERAGES | 44136.27 | +265.92 | +0.61% |
| I:COMP | NASDAQ COMPOSITE INDEX | 18983.583307 | +11.16 | +0.06% |
| SP500 | S&P 500 | 5965.09 | +16.38 | +0.28% |
Stocks tumbled following the speech, with the Dow Jones Industrial Average closing down 220.33 points.
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Hiking interest rates tends to create higher rates on consumer and business loans, which then slows the economy by forcing employers to cut back on spending. Higher rates have helped push the average rate on 30-year mortgages above 7% for the first time in years. Borrowing costs for everything from home equity lines of credit to auto loans and credit cards have also spiked.
Powell also reiterated that central bank officials are cognizant of striking a delicate balance between raising interest rates high enough to crush inflation without overtightening.
"If it becomes appropriate to tighten policy further, we will not hesitate to do so," he said. "We will continue to move carefully, however, allowing us to address both the risk of being misled by a few good months of data and the risk of overtightening."