Fed Chair’s Message Is Clear: The Fight Against Inflation Isn’t Over

Jerome H. Powell, the chair of the Federal Reserve, pledged during a closely watched speech that his central bank would stick by its push to stamp out rapid inflation “until the job is done” and said that officials stood ready to raise interest rates further if needed.

Mr. Powell, who was speaking Friday at the Federal Reserve Bank of Kansas City’s annual Jackson Hole conference in Wyoming, said that the Fed would “proceed carefully” as it decided whether to make further policy adjustments after a year and a half in which it had pushed interest rates up sharply.

But even as Mr. Powell emphasized that the Fed is trying to balance the risk of doing too much and hurting the economy more than is necessary against the risk of doing too little, he was careful not to take a victory lap around a recent slowing in inflation. His speech hammered home one main point: Officials want to see more progress to convince them that they are truly bringing price increases under control.

“The message is the same: It is the Fed’s job to bring inflation down to our 2 percent goal, and we will do so,” Mr. Powell said, comparing his speech to a stern set of remarks he delivered at last year’s Jackson Hole gathering.

Central bankers have lifted interest rates to a range of 5.25 to 5.5 percent, up from near-zero as recently as March 2022, in a bid to cool the economy and wrestle inflation lower. They have been keeping the door open to the possibility of one more rate increase, and have been clear that they expect to leave interest rates elevated for some time.

Mr. Powell kept that message alive on Friday.

“We are prepared to raise rates further if appropriate, and intend to hold policy at a restrictive level until we are confident that inflation is moving sustainably down toward our objective,” he said.

But the Fed chair noted that “at upcoming meetings we are in a position to proceed carefully as we assess the incoming data and the evolving outlook and risks,” and that officials would “decide whether to tighten further or, instead, to hold the policy rate constant and await further data.”

That suggests that central bankers are not determined to raise interest rates at their upcoming meeting in September. Instead, they might wait until later in the year — they have meetings in November and December — before making a decision about whether borrowing costs need to climb further. Striking a patient stance would give officials more time to assess how the moves they have already made are affecting the economy.

“I think this does pave the way for a pause at the September meeting, and leaves their options open after,” said Laura Rosner-Warburton, senior economist at MacroPolicy Perspectives. “We’re close to the top, we may be there, and they’re going to move carefully.”

Mr. Powell made clear that the Fed was not in a rush to raise rates again, but he remained cautious about the risk of further inflation.

Price increases have come down notably in recent months, to around 3 percent as measured by the Fed’s preferred gauge. That is still higher than the Fed's 2 percent inflation goal, though it is down sharply from a 7 percent peak last summer.

And there are signs of stubbornness lingering under the surface. After stripping out food and fuel for a look at the underlying trend, the central bank’s preferred inflation gauge is still running at about twice the Fed’s goal.

“The process still has a long way to go, even with the more favorable recent readings,” Mr. Powell said. “We can’t yet know the extent to which these lower readings will continue or where underlying inflation will settle over coming quarters.”

That is partly because the Fed is trying to assess how much its policy adjustments are really weighing on the economy and, through it, inflation.

The Fed’s higher borrowing costs have been cutting into demand for cars and houses by making auto loans and mortgages more expensive, and they are probably discouraging business expansions and cooling the job market.

But it is unclear just how severely the Fed’s current policy setting is weighing on the economy. Rates are much higher than the level that most economists think is necessary to keep the economy growing below its potential run rate, but such estimates are subject to error.

“There is always uncertainty about the precise level of monetary policy restraint,” Mr. Powell acknowledged Friday.

That is particularly relevant in the face of recent economic data, which has been surprisingly strong. Consumers continue to spend and companies continue to higher at a solid clip in the face of the Fed’s onslaught. The resilience has caused some economists to warn that there is a risk that the economy could speed back up, keeping inflation elevated.

“We are attentive to signs that the economy may not be cooling as expected,” Mr. Powell said. “Additional evidence of persistently above-trend growth could put further progress on inflation at risk and could warrant further tightening of monetary policy.”

Still, Mr. Powell also emphasized that the economy could be taking time to react to the policy moves already made, and that conditions are unusual in the wake of the pandemic: For instance, job openings have fallen by an unusual amount without pushing up unemployment.

“This uncertainty underscores the need for agile policymaking,” he said.

Mr. Powell carefully avoided any hint that the Fed might turn soft on inflation, however. He shot down a growing round of speculation among economists that the Fed could — or should — raise its inflation goal, which would make it easier to hit.

“Two percent is and will remain our inflation target,” he said.

And he finished the talk with the same line that he used to conclude his speech at last year’s Jackson Hole gathering, which was roundly seen as an aggressive stance against inflation.

“We will keep at it until the job is done,” he said.

Jeanna Smialek writes about the Federal Reserve and the economy for The Times. She previously covered economics at Bloomberg News.  More about Jeanna Smialek

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