US inflation still high, warrants slower economic growth, more rate hikes to achieve 2% target: Fed Chair Powell | Mint
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Business News/ Economy / US inflation still high, warrants slower economic growth, more rate hikes to achieve 2% target: Fed Chair Powell
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US inflation still high, warrants slower economic growth, more rate hikes to achieve 2% target: Fed Chair Powell

For inflation to durably return to the Fed's 2 per cent target, it 'is likely to require a period of below-trend growth and some further softening in labor market conditions,' Powell said.

FILE PHOTO: U.S. Federal Reserve Chair Jerome Powell attends a news conference in Washington, U.S., July 26, 2023. REUTERS/Elizabeth Frantz/File Photo (REUTERS)Premium
FILE PHOTO: U.S. Federal Reserve Chair Jerome Powell attends a news conference in Washington, U.S., July 26, 2023. REUTERS/Elizabeth Frantz/File Photo (REUTERS)

Federal Reserve Chair Jerome Powell said on Thursday, October 19, that inflation in the US remains too high and bringing it down to the Fed's 2 per cent target level will likely require a slower-growing economy and job market. Powell's remarks appeared to push back against market expectations that the rate hikes by the US central bank had reached an end.

"We are attentive to recent data showing the resilience of economic growth and demand for labor. Additional evidence of persistently above-trend growth, or that tightness in the labor market is no longer easing, could put further progress on inflation at risk and could warrant further tightening of monetary policy," Powell said in remarks to the Economic Club of New York.

Also Read: US Fed Meeting Highlights: At 5.25%-5.5%, FOMC holds rates unchanged at 22-year high-mark

More rate hikes to battle high inflation

Powell underscored lingering theme at the US central bank and explained that despite a steady progress on lowering inflation, the battle in US is not over and further rate hikes are still a possibility with the duration of tight monetary conditions yet to be determined.

"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, citing the progress made since inflation peaked last year.

The Fed’s preferred measure of price changes eased to 3.5 per cent in September compared with 12 months earlier, down sharply from a year-over-year peak of 7 per cent in June 2022.

"We cannot yet know how long these lower readings will persist, or where inflation will settle over coming quarters," Powell said. "The path is likely to be bumpy and take some time...My colleagues and I are united in our commitment to bringing inflation down sustainably to 2 per cent,'' said the Fed Chair.

The US Federal Reserve announced its last interest rate decision on September 21, after a two-day Federal Open Market Committee (FOMC) meeting and left the benchmark interest rates unchanged at 5.25 per cent - 5.50 per cent. 

Last month, Fed officials predicted that they would impose one more interest rate hike before the end of the year, on top of a series of 11 rate increases that have lifted their key rate to about 5.4 per cent, its highest level in 22 years.

Geopolitical Risks

In light of the latest Israel-Hamas war, Powell also noted a number of fresh uncertainties and geopolitical risks that need to be accounted for as the Fed tries to balance the threat of allowing inflation to rekindle against the threat of leaning on the economy more than is necessary.

"Our institutional role at the Federal Reserve is to monitor these developments for their economic implications, which remain highly uncertain," Powell said. “Speaking for myself, I found the attack on Israel horrifying, as is the prospect for more loss of innocent lives."

Also Read: US Fed Reserve Policy: FOMC doubles US GDP growth projection to 2.1% from 1% for 2023

Overview

In his remarks, Powell echoed other Fed officials in suggesting that the US economy is at a turning point: If growth remains as healthy as it has been since this summer, additional rate hikes could be needed. But any sign of weaker growth or hiring could help slow inflation and allow the Fed to keep rates unchanged.

Beginning in March 2022, the Fed has raised their benchmark rate at the fastest pace in four decades. The rate hikes have led to much higher borrowing rates across the economy, tightening the financial pressures on households and companies.

Powell also added that the Fed is "proceeding carefully" in evaluating the need for any further rate increases, likely leaving intact the current expectations by Wall Street traders and economists that central bank will keep the benchmark policy rate steady at the current 5.25 per cent to 5.5 per cent range in the upcoming October 31-November 1 meeting. 

 

With inputs from Reuters, AP

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Published: 19 Oct 2023, 10:05 PM IST
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