Fed Chairman Jerome Powell said the US central bank may need to raise interest rates further to ensure inflation is under control on Friday (25/8).
This step is an effort to balance the decline in the pace of price increases over the past year with the overperformance of the US economy.
Powell said Fed policymakers will “proceed with caution as we decide whether to undertake further tightening,” but also made clear that the central bank has not concluded that its benchmark interest rate is high enough to ensure inflation returns to its 2% target.
“It is the Fed’s job to bring inflation down to the 2% target and we will do that,” Powell said.
“We have tightened policy significantly over the past year. Although inflation has come down from its peak – a good development – it is still too high. We are prepared to raise rates further if needed, and intend to keep policy at a tight level until we are confident that inflation is moving down sustainably toward our objective.”
Powel said, in this context, recent economic data has raised new concerns. “We are watching for signs that the economy may not be cooling as expected,” with consumer spending “very strong” and the housing sector possibly recovering, Powell said.
The economy continues to grow above trend, Powell said, and if that continues “could jeopardize further progress in inflation and could warrant further monetary policy tightening.”
His remarks suggest that the Fed is grappling with conflicting signals from the economy.
It is difficult, he said, to know exactly to what extent the Fed’s current benchmark interest rate of 5.25% to 5.5% has reached the “neutral” rate needed to slow the economy. It is therefore difficult to judge where the policy stance is.
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