Powell reinforces Fed’s cautious approach toward further interest rate hikes

Federal Reserve Chair Jerome Powell suggested Thursday that the Fed is in no hurry to further raise its benchmark interest rate, given evidence that inflation pressures are continuing to ease at a gradual pace.

At the same time, in a panel discussion at the International Monetary Fund, Powell did not rule out another rate hike to help reduce inflation to the Fed’s 2% target level. Inflation, as measured by the U.S. consumer price index, has sunk from a 9.1% peak last year but is still 3.7%.

“We are not confident,” Powell said, that the Fed’s benchmark rate is high enough to steadily reduce inflation to 2%.

He added: “We know that ongoing progress toward our 2% goal is not assured. Inflation has given us a few head fakes.”

Powell noted, for example, that inflation had declined for five straight months during 2021 before reversing later that year and heading higher.

He said that “if it becomes appropriate” to raise rates further, “we will not hesitate to do so,” a phrasing that suggests that for now it isn’t appropriate to increase the Fed’s benchmark rate.

For now, the Fed chair said, he believes the central bank faces nearly equal risks of raising its benchmark rate too high, which could derail the economy, or not raising it high enough, which could allow inflation to persist or worsen.

“We will continue to move carefully,” he said, a phrase he has used often that is widely interpreted to mean that the Fed will closely monitor incoming data but it isn’t leaning toward a hike.

Powell’s remarks were interrupted by climate-change protestors, and he was briefly escorted off stage. He resumed his remarks several minutes later.

The Fed has raised its key rate 11 times since March 2022, leading to much higher rates on many consumer and business loans. Last week, at a news conference, Powell suggested that higher longer-term interest rates, including a higher yield on the 10-year Treasury note, could help slow the economy and cool inflation without further rate hikes.

The central bank’s benchmark short-term rate, now about 5.4%, is at its highest level in 22 years. Yet the Fed has raised rates only once since May, and most economists have said they think the central bank is likely done tightening credit.

Powell, though, has continued to hold out the possibility of another rate hike. During a question-and-answer session Thursday, he said the Fed is still considering how high it will need to raise its benchmark rate. Then it will turn to how long to leave it at that rate.

Since the Fed held its policy meeting last week, the government reported that hiring in the United States slowed in in October and that the unemployment rate ticked up again, to a still-low 3.9%. Though employers added a solid 150,000 jobs last month, the data pointed to a cooler job market and more modest pay growth. Fast-growing wages are good for workers but can lead employers to raise prices and perpetuate inflation.

On Thursday, Powell’s remarks followed those of several other Fed officials who generally expressed the view that the central bank should closely monitor upcoming economic data before taking any further action on interest rates.

Tom Barkin, president of the Federal Reserve Bank of Richmond, said he expects the economy to slow in the coming months and bring inflation back down toward the Fed’s 2% target. Whether a reduction in inflation “requires more from us remains to be seen,” Barkin said, “which is why I supported our decision to hold rates at our last meeting.”

Kathleen O’Neill Paese, the interim president of the Federal Reserve Bank of St. Louis, also expressed support for a wait-and-see approach to observe whether inflation continues to ease in the coming months. O’Neill Paese said “it would be unwise to suggest that further rate hikes are off the table.”

But she added that the Fed’s benchmark rate is “exerting modest downward pressure on inflation,” so officials “can afford to await further data before concluding” that more rate hikes might be needed.