Federal Reserve Chairman Jerome Powell spoke candidly on Thursday about the ongoing challenge of inflation, expressing cautious optimism for the decreasing pace but admitting uncertainties about future progress. Powell stated that despite the central bank maintaining its benchmark policy rates, there could be more work ahead to combat high prices.
Powell’s address, which was briefly interrupted by climate protesters, took place amidst an inflation environment that remains above the Fed’s targets yet significantly lower than peak levels seen in early 2022. In an effort to control inflation, the bank has enacted 11 rate hikes, the most aggressive tightening since the 1980s, taking the benchmark rate to a target range of 5.25%-5.5%.
Through these measures, the Fed’s favored inflation barometer — the core personal consumption expenditures price index — has seen a drop to an annual rate of 3.7% from 5.3% in February 2022.
“The Federal Open Market Committee is committed to achieving a stance of monetary policy that is sufficiently restrictive to bring inflation down to 2 percent over time; we are not confident that we have achieved such a stance.”
Fed Chair Jerome Powell via CNBC
While Powell acknowledged that inflation is still “well above” preferred levels, he underlined the bank’s commitment to achieving its inflation target. He stated, “We will keep at this until we succeed,” emphasizing that the Fed is especially focused on whether rates need to increase and the length of time they need to stay high.
However, Powell’s comments led to a drop in stocks, with the Dow Jones Industrial Average dropping nearly 200 points, and Treasury yields saw an increase after falling for the past three weeks.
Should inflation increase again, Powell warns that the Fed will not hesitate to tighten policy further. He emphasized the need for caution, as the bank walks a fine line between the risks of either overcorrecting or undercorrecting.
While Powell remains cautiously optimistic, markets anticipate that the Fed will start cutting rates next year, potentially by June. Powell, in his remarks, highlighted the significant growth the economy has experienced, but he acknowledged the challenges ahead posed by the zero-rate environment. The Fed will continue to monitor the situation closely, ready to act as necessary to manage inflation and maintain economic stability.