In a speech at the Jackson Hole Economic Policy Symposium on Friday, Federal Reserve Chair Jerome Powell said that the central bank will “proceed carefully” on any further interest rate hikes, but that the economy could warrant additional action if it continues to grow above trend.
Powell noted that inflation has come down from its peak, but that it remains too high. He said that the Fed is “committed to bringing inflation back down to our 2% target,” and that it will use its tools “expeditiously” to do so.
However, Powell also said that the Fed is mindful of the risks of raising rates too quickly or too much. He said that the central bank wants to avoid a “hard landing” for the economy, and that it will “proceed carefully” as it assesses the economic data and determines its next course of action.
The Fed has raised interest rates 11 times since March 2022, and the benchmark federal funds rate is now in a range of 5.25% to 5.5%. Some economists believe that the Fed may need to raise rates even higher to bring inflation under control. However, Powell’s comments suggest that the Fed is not in a hurry to do so, and that it will take a measured approach to tightening monetary policy.
The economy is showing some signs of slowing down, but it is still growing above trend. Powell said that the Fed is “attentive to signs that the economy may not be cooling as expected,” and that it will “act as appropriate” to ensure that inflation comes down.
Inflation and the Fed’s Response
The Fed’s main focus is on bringing inflation back down to its 2% target. Inflation has been running well above that target for the past year, reaching a peak of 8.6% in May. The Fed has taken aggressive action to raise interest rates in an effort to cool the economy and bring inflation down.
The Fed’s actions have had some success. Inflation has come down from its peak, but it remains too high. In June, inflation was 8.3%. The Fed expects inflation to continue to decline in the coming months, but it is not clear when it will reach the 2% target.
The Risks of Raising Rates Too Much
The Fed is mindful of the risks of raising rates too quickly or too much. Raising rates too much could lead to a recession. The economy is already slowing down, and raising rates could further slow the economy and lead to job losses.
The Fed also wants to avoid a “hard landing.” A hard landing is a recession that is severe and prolonged. A hard landing could lead to a significant increase in unemployment and a decline in economic activity.
The Fed’s Next Steps
The Fed’s next policy meeting is scheduled for September 20-21. Investors will be closely watching Powell’s next public remarks for clues about the central bank’s future plans for monetary policy.
Some economists believe that the Fed may need to raise rates even higher to bring inflation under control. However, Powell’s comments suggest that the Fed is not in a hurry to do so, and that it will take a measured approach to tightening monetary policy.
The Fed is walking a fine line. It needs to raise rates enough to bring inflation down, but it does not want to raise rates so much that it causes a recession. The Fed’s next policy meeting will be a key moment in determining the course of the economy in the coming months.
Additional Analysis
Powell’s comments in Jackson Hole were significant for a number of reasons. First, they signaled that the Fed is not in a hurry to raise rates even higher. This is in contrast to some market expectations that the Fed could raise rates by 75 basis points at its next meeting.
Second, Powell’s comments suggest that the Fed is willing to take a more measured approach to tightening monetary policy. This is a sign that the Fed is mindful of the risks of raising rates too much.
Third, Powell’s comments indicate that the Fed is closely monitoring the economy. The Fed will be looking for signs that the economy is slowing down too much. If the economy does slow down too much, the Fed may need to pause or even reverse its rate hikes.
The Fed’s next policy meeting will be a key moment in determining the course of monetary policy in the coming months. Powell’s comments in Jackson Hole suggest that the Fed is likely to continue to raise rates, but it will do so in a measured way.
