Powell Says U.S. Fed Could Raise Rates Further, but Will “Proceed Carefully”

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The U.S. Federal Reserve is “prepared to raise rates further” to bring down inflation toward the 2 percent inflation target, but will “proceed carefully,” Fed Chair Jerome Powell said on Friday.

Although inflation has moved down from its peak, “it remains too high,” Powell said in his keynote speech at an economic symposium in Jackson Hole, Wyoming.

“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, adding that the Fed was “attentive to signs that the economy may not be cooling as expected.”

So far this year, the U.S. gross domestic product (GDP) growth has come in above expectations and above its longer-run trend, and recent readings on consumer spending have been especially robust, according to the Fed chair.

The U.S. economy increased at an annual rate of 2.4 percent in the second quarter, faster than expected, official data showed. But the U.S. consumer price index (CPI) rose 3.2 percent in July from a year ago, and the core CPI increased 4.7 percent, still well above the Fed’s 2 percent inflation target.

Powell said that getting inflation sustainably back down to the 2 percent is expected to require a period of below-trend economic growth as well as some softening in labor market conditions.

In his speech, Powell reiterated the Fed’s determination to keep its benchmark rate elevated until inflation is reduced to its 2 percent target.

The 2 percent “is and will remain our inflation target,” Powell said. “We will need price stability to achieve a sustained period of strong labor market conditions that benefit all.”

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

Meanwhile, Powell urged caution moving forward, considering the uncertainties and risks the Fed faces, which include the supply and demand dislocations, the labor market rebalancing and the duration of the lags with which monetary tightening affects economic activity and inflation.

“As is often the case, we are navigating by the stars under cloudy skies,” he said. “In such circumstances, risk-management considerations are critical.”

The U.S. central bank will vote to decide the direction of the monetary policy at the next Federal Open Market Committee meeting scheduled for Sept. 19-20.

Powell said that at its upcoming meetings, the Fed will assess its progress based on the totality of the data and the evolving outlook and risks.

“Based on this assessment, we will proceed carefully as we decide whether to tighten further or, instead, to hold the policy rate constant and await further data,” he noted.