Jerome Powell says Fed 'won't hesitate' to raise interest rates again if warranted

Federal Reserve Chair Jerome Powell on Friday kept the possibility of another interest rate hike in play this year, despite cooling inflation. 

"It would be premature to conclude with confidence that we have achieved a sufficiently restrictive stance, or to speculate on when policy might ease," Powell said in remarks prepared for delivery at Spelman College in Atlanta. "We are prepared to tighten policy further if it becomes appropriate to do so."

Powell's comments come shortly 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 still-high inflation.

FED'S FIGHT AGAINST INFLATION IS WEIGHING ON MIDDLE-CLASS AMERICANS

While inflation has cooled considerably in recent months, it remains up 3.2% compared with the same time a year ago, according to the most recent Department of Labor data.

"The FOMC is strongly committed to bringing inflation down to 2 percent over time, and to keeping policy restrictive until we are confident that inflation is on a path to that objective," Powell said. 

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, on December 12 and 13. Investors widely agree the central bank will hold rates steady, despite the somewhat hawkish overtures by Powell on Friday, according to the CME Group's FedWatch tool, which tracks trading.  

In fact, many investors expect the central bank to begin cutting rates in the middle of next year amid signs the economy is cooling. Stocks rose after Powell's speech, even as he hinted that rate cuts remain a ways away.

"The current ‘higher for longer’ mantra has been countered by the markets' profound conviction that the Fed delivered a ‘dovish’ pivot at its November 1 meeting, and that it will initiate a rate cutting cycle by mid-2024, if not sooner," said Quincy Krosby, chief global strategist for LPL Financial.

FED SKIPS AN INTEREST RATE HIKE, BUT HIGH MORTGAGE RATES COULD BE HERE TO STAY

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. 

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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.

"Having come so far so quickly, the FOMC is moving forward carefully, as the risks of under- and over-tightening are becoming more balanced," he said.