The message that her work Fedas far as the inflation “front” is concerned, is probably not over, the head of the Federal Reserve issued Jerome Powell on a panel of the International Monetary Fund (IMF), leaving open again the “window” for a new increase of interest rates. In this context, he emphasized the need for the Fed to follow a careful approach, so as not to be “misled” by some good data, but also not to be led to “excessive tightening”.
In particular, Powell indicated that Federal Reserve officials are “pleased” with the progress made so far in reducing inflation, but noted that they are not yet confident that interest rates are high enough to drive inflation to the 2% target over time.
“The Federal Open Market Committee is committed to achieving a monetary policy stance that is sufficiently restrictiveso as to reduce inflation to 2% over time. We’re not sure that we achieved such an attitude” he noted.
“We know that continued progress towards the 2% target is not assured: Inflation has given us some misleading informationhe also said.
In fact, Powell said the Fed “will not hesitate” to raise interest rates again if necessary. At the same time, he emphasized that the Fed will be careful in its future decisions.
“If it becomes appropriate to tighten the policy further, we will not hesitate let’s do it” he emphasized.
“We will keep moving carefullyhowever, allowing us to address both the risk of misleading from a few good months of data, as well as the risk of over-tightening” pointed out.
As he said, because of the strong GDP growth in the third quarter, the Fed is cautious about the risk that stronger economic growth could undermine progress in inflation.
Powell’s new statements come days after the Fed’s latest decision to keep interest rates unchanged, leading to a second consecutive pause in the rate hike cycle.
The US Federal Reserve, at its latest meeting, kept interest rates steady at the highest levels in 22 years, in the range of 5.25% – 5.5%.
Jerome Powell has repeatedly been quick to make it clear that the fight against inflation is not over. However, market bets appear to want a rate cut in May 2024, with Central Bank officials saying it is too early for any such talk.