Fed's Powell

Fed’s Powell Hints Potential Policy Tightening Amid Inflation Concerns

Federal Reserve Chairman Jerome Powell expressed uncertainty about the central bank’s success in combating inflation, stating that while encouraged by the recent slowdown, there is apprehension about achieving the desired momentum. Speaking to an International Monetary Fund audience in Washington, D.C., Powell emphasized the Federal Open Market Committee’s commitment to adopting a sufficiently restrictive monetary policy to bring inflation down to 2 percent over time. However, he acknowledged a lack of confidence in achieving this stance.

This marks the second instance of climate protesters interrupting Powell’s recent public addresses. Despite the disruption, Powell continued, addressing the persistent challenge of elevated inflation. The core personal consumption expenditures price index, the Fed’s preferred inflation gauge, has seen a decline to an annual rate of 3.7% from 5.3% in February 2022. Powell noted that inflation remains “well above” the Fed’s target, describing the current policy as “significantly restrictive.”

While expressing gratification for the progress made, Powell cautioned that sustaining a 2 percent inflation rate still has a long way to go. He assured that the Fed would persist in its efforts, closely monitoring the need for potential rate hikes and the duration of elevated rates. Following the speech, stocks experienced a decline, and the Dow Jones Industrial Average dropped nearly 200 points.

Powell warned investors against excessive optimism about potential rate cuts, stating that the Fed would adhere to its mandate and hike rates further if inflation were to reaccelerate. He reiterated the Fed’s commitment to a cautious approach, carefully assessing data to avoid the risks of either overreacting or underreacting to economic indicators. Powell acknowledged the challenges of keeping rates near zero, emphasizing that it is “too soon” to determine if zero-rate challenges are a thing of the past. Despite market expectations of a rate cut next year, Powell’s remarks indicated a continued focus on inflation control through measured policy adjustments.

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