In seemingly his most hawkish remarks to date, Federal Reserve Chair Jerome Powell confirmed that the central bank will keep hiking interest rates until inflationary pressures head lower in “a clear and convincing way.”
“What we need to see is inflation coming down in a clear and convincing way, and we’re going to keep pushing until we see that. If that involves moving past broadly understood levels of neutral, we won’t hesitate at all to do that,” Powell, who was confirmed by the Senate last week to a second four-year term at the helm of the Fed, said Tuesday during a Wall Street Journal event.
“We will go until we feel we’re at a place where we can say financial conditions are in an appropriate place, we see inflation coming down. We’ll go to that point. There won’t be any hesitation about that,” he added.
Earlier this month, the Fed green-lighted a rare half-percentage-point interest rate hike and announced plans to shrink its $9 trillion asset portfolio beginning next month in an effort to blunt inflation, which has surged to a four-decade high. The key benchmark federal funds rate now sits at a range between 0.75 percent and 1 percent, the highest level since the Covid-19 pandemic began more than two years ago.
Powell stated following that increase that similar fifty-basis point moves were likely to come at ensuing meetings. But on Tuesday, he also cautioned that higher rates going forward could eventually start to have a larger impact on growth.
“This is a strong economy and we think it’s well positioned to withstand less accommodative monetary policy, tighter monetary policy. There could be some pain involved in restoring price stability, but we think we can maintain a strong labor market,” Powell said, reaffirming the Fed’s 2 percent inflation target.
“You’d still have a strong labor market if unemployment were to move up a few ticks. I would say there are a number of plausible paths to have a soft as I said softish landing. Our job isn’t to handicap the odds, it’s to try to achieve that,” he added.
In an interview with National Public Radio’s Marketplace last week, Powell acknowledged for the first time that high-inflationary pressures and economic headwinds abroad could stymie the Fed’s efforts to avoid causing a recession.
“The question whether we can execute a soft landing or not—it may actually depend on factors that we don’t control. There are huge events, geopolitical events going on around the world, that are going to play a very important role in the economy in the next year or so,” he said.
“A soft landing is, is really just getting back to 2 percent inflation while keeping the labor market strong. And it’s quite challenging to accomplish that right now. … No one here thinks that it will be easy. Nonetheless, we think there are pathways … for us to get there,” he concluded.
Ethen Kim Lieser is a Washington state-based Finance and Tech Editor who has held posts at Google, The Korea Herald, Lincoln Journal Star, AsianWeek, and Arirang TV. Follow or contact him on LinkedIn.