Powell: The Fed is moving cautiously

Federal Reserve Chairman Jerome Powell said the Fed would continue to tread cautiously, but would not hesitate to further tighten monetary policy if necessary.

“If it becomes appropriate to tighten policy further, we will not hesitate to do so,” Powell said in opening remarks at a panel discussion at an International Monetary Fund conference in Washington on Thursday.

“We will continue to tread carefully, allowing ourselves to face both the risk of being misled by a few good months of data and the risk of over-tightening,” he said.

Powell said policymakers are committed to making sure interest rates are high enough to bring inflation back to the 2 percent target, but added, “we’re not sure we’ve hit that target.”

The dollar and 10-year US Treasury yields moved further higher after Powell’s remarks were released, while the S&P 500 extended losses.

Shortly after he began speaking, Powell was escorted from the conference room as a group of about 12 environmental protesters took the stage. Unfurling a banner, they shouted slogans and spoke for about five minutes before leaving.

US central bankers are trying to assess whether they should raise benchmark interest rates a little more and are debating how long they should keep rates high. The Federal Open Market Committee (FOMC) that set policy last week kept interest rates in a range of 5.25% to 5.5%, the highest level in 22 years.

Inflation has slowed but remains above the Fed’s target of 3.4% for the year to September. Fed officials are due to meet again on December 12-13, and traders are betting that they are already at the peak of their rate hike cycle and will start cutting rates in 2024.

In his speech, the Fed chief said it was unclear how much more progress on inflation could be made in the future through supply-side improvements.

“Going forward, perhaps a greater share of progress in reducing inflation will have to come from tight monetary policy that restrains growth in aggregate demand,” Powell said.

He also hinted that the central bank would undertake another review of its policy framework starting in 2024, following a major overhaul in 2020.

“Among the questions we will be looking at is the extent to which the structural features of the economy that led to low interest rates in the pre-pandemic era will persist,” Powell said. “Over time, we will continue to learn from the experience of recent years and the implications this may have for monetary policy.”

Powell spoke on a panel with Israel’s central bank governor Amir Yaron and IMF first deputy managing director Geeta Gopinath.