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Federal Reserve Chair Jerome Powell signaled interest rates will stay high and could rise even further should the economy and inflation fail to cool.
In a hotly anticipated speech Friday at the US central bank’s annual conference in Jackson Hole, Wyoming, Powell stressed that the Fed’s inflation-fighting job isn’t done while noting progress in slowing price gains.
The key takeaway from the speech is that Monetary policy will stay “restrictive” until inflation is moving more firmly toward 2%.
He also said the central bank will proceed “carefully,” leaving room for the Fed to hold rates steady at its next meeting in September, following a July hike to a 22-year high of 5.25% to 5.5%.
Complicating the strategy are several uncertainties, that Powell referred to as “navigating by the stars under cloudy skies.”
Among those he cited: Fed officials can’t know in real time or with precision the exact level of rates needed to get the desired slowing in the economy. It’s also unclear how much their previous rate hikes have affected economic activity and financial markets, and how much of that impact is yet to come.
This makes it tougher for Fed officials to balance the risk of doing too much — and potentially triggering a sharp rise in unemployment and a subsequent downturn — against the risk of too little, which could allow inflation to become entrenched, Powell said.
“In such circumstances, risk-management considerations are critical,” he said. “We will proceed carefully as we decide whether to tighten further or, instead, to hold the policy rate constant and await further data.”