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WASHINGTON: US inflation is “still too high” despite a recent slowdown, Federal Reserve Chair Jerome Powell said on Thursday (Oct 19), leaving the door open for a new interest rate hike.
Additional evidence of “persistently above-trend growth” or fresh signs of tightness in the labour market “could warrant further tightening of monetary policy,” he told a conference in New York.
The Fed recently slowed its aggressive campaign of monetary tightening which lifted its benchmark lending rate to a 22-year high, as it looks to slow down inflation without pushing the US economy into recession.
Headline inflation, as measured by the Fed’s favoured gauge, has more than halved since peaking in June last year, but remains stuck above its long-term target of 2 per cent.
“Inflation is still too high, and a few 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 in a speech that was briefly delayed by climate change protesters.
“We cannot yet know how long these lower readings will persist, or where inflation will settle over coming quarters,” he continued, adding that the Fed would proceed “carefully” at future interest rate meetings.
“The Fed is in no hurry to tighten monetary policy further. A November rate hike can safely be priced out,” EY Chief Economist Gregory Daco wrote in a note to clients.
US stocks declined following Powell’s remarks, ending the day firmly in the red.
MONETARY POLICY IS “RESTRICTIVE”
Powell said the Fed’s current policy stance is “restrictive,” suggesting that monetary policy was working to put “downward pressure on economic activity and inflation.”
The US economy “is handling much higher rates – at least for now – without difficulty,” he said.
“Does it feel like policy is too tight right now? I would have to say no,” he added.
Recent data points to the continued strength of the US economy supported by resilient consumer spending, while the tight labour market is showing some signs of softening.
Powell warned that “a range of uncertainties, both old and new,” were complicating monetary policy.
The Fed’s upcoming decisions will be “based on the totality of the incoming data, the evolving outlook, and the balance of risks,” he said, echoing previous comments.
“Our view remains that the Fed is done with its tightening cycle, but that rate cuts won’t occur until June 2024,” said Daco from EY.
Futures traders now assign a probability of 99 per cent that the Fed will hold interest rates steady on November 1, following its next meeting, according to data from CME Group.
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