While inflation has moved down from its peak, it remains too high and the Federal Open Market Committee is prepared to raise the federal funds rate further if necessary, Federal Reserve Chairman Jerome Powell said today. Speaking during the Kansas City Fed’s annual economic symposium in Wyoming, Powell stressed that the Fed remains committed to lowering the rate of inflation to its target of 2%, and that will likely mean holding monetary policy at a restrictive level until it is confident that inflation is moving toward that objective.
Getting inflation down to 2% is expected to require a period of below-trend economic growth and some softening in labor market conditions, Powell said. Interest rates are up and bank lending standards have tightened, but GDP growth has come in above expectations and above its longer-run trend, recent readings on consumer spending have been robust, and the housing sector is showing signs of picking back up after sharply decelerating over the past 18 months. Demand for labor and job openings are trending downward, but real wage growth has been increasing as inflation has fallen. Persistent above-trend growth and tightness in the labor market could warrant further tightening of monetary policy, he said.
“We see the current stance of policy as restrictive, putting downward pressure on economic activity, hiring and inflation,” Powell said. “But we cannot identify with certainty the neutral rate of interest, and thus there is always uncertainty about the precise level of monetary policy restraint.” The FOMC next meets Sept. 19-20.