Federal Reserve Chair Jerome Powell delivered a hawkish speech at a symposium in Wyoming on Friday.
During his address, Powell highlighted the resilience of consumers and the continued strength of the U.S. economy, suggesting that if such trends continue, further interest rate hikes could be in store.
“We are attentive to signs that the economy may not be cooling as expected,” said Powell. “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.”
“Although inflation has moved down from its peak — a welcome development — it remains too high,” he said during the annual conference of central bankers in Jackson Hole.
As reported by The Dallas Express, U.S. inflation saw a peak headline reading of 9.1% back in June 2022. Inflation then proceeded to inch lower over the subsequent 12 months before finally rebounding in July.
According to the Consumer Price Index report for July, inflation rose 3.2% year over year, up from 3% in June. Although analysts had forecasted a higher increase in July, the trend reversal ultimately dispelled any notion that the Fed would hit its 2% target in the near future.
Still, Powell acknowledged that core inflation — excluding the volatile food and energy categories — has shown signs of easing in recent months. Powell called it “very good news.”
“[But] two months of good data are only the beginning of what it will take to build confidence that inflation is moving down sustainably toward our goal,” Powell said during the Jackson Hole event.
While Powell has continually emphasized the importance of taking a data-dependent approach to fighting inflation, continued economic strength has left room for more rate hikes, according to Omair Sharif, chief economist at Inflation Insights.
“When it comes to another rate hike, the chair still very much has his finger on the trigger, even if it’s a bit less itchy than it was last year,” said Sharif, the Associated Press reported.
The U.S. Central Bank has approved 11 rate hikes since beginning its tightening cycle back in March 2022. In doing so, the Fed has raised its benchmark rate from near zero to a current range of 5.25% to 5.5%, the highest Fed funds rate since 2001, as previously reported by The Dallas Express.
The Fed is scheduled to make its next rate hike decision during an upcoming policy meeting (September 19-20).
The CME FedWatch Tool, which tracks Fed futures, suggested there was an 80% chance that interest rates would remain steady in September and a 20% chance of a 0.25% increase — as of August 25 at 6 p.m.
Even though Powell signaled confidence that he could navigate the economy into a soft landing without triggering a recession, other industry professionals are not so confident.
“The lag impact of all the tightening that the Fed has done — the most amount that we’ve seen in decades — is likely to bite and tip the economy into a recession,” said Emily Roland, co-chief investment strategist at John Hancock Investment Management, per the AP. “It’s just taking a while to get there.”
While the U.S. economy is not guaranteed to enter into a recession, Sonia Meskin, head of U.S. macro at BNY Mellon Investment Management, suggested that financial markets are “underestimating the chances of a harder, delayed landing.’’
“Much of the tightening might still be in the pipeline,’’ Meskin said, the AP reported.
