Federal Reserve Chair Jerome Powell signaled this week that policymakers may continue to raise interest rates if that’s what it takes to get rising prices under control. Powell delivered his remarks at the annual Jackson Hole Economic Policy Symposium on Friday. He reminded his audience that the Fed’s goal is to reduce inflation to 2% and promised to do so.
Continuing challenges to Fed’s efforts to meet inflation goal
Powell noted that the U.S. economy’s continued strength posed a challenge to the Fed’s efforts to rein in rising prices. He cited “especially robust” spending by consumers and signs of renewed strength in the housing sector. According to him, those indicators could make it even harder to reduce inflation and force the Fed to consider even more rate hikes.
“We are prepared to raise rates further if appropriate and intend to hold policy at a restrictive level until we are confident that inflation is moving sustainably down toward our objective.”
The most recent reports on U.S. inflation suggest that prices have been rising at nearly 3.2%. That’s well below the more than 8% rate recorded in 2022, but the effects of those increases are cumulative. So, while the inflation rate has cooled, prices for most goods and services remain elevated.
Looking for an economic slowdown?
Powell has repeatedly suggested that conquering the current price hike cycle will require some cooling in the economy. He has also pointed to a need to rebalance the labor markets. He doubled down on those expectations in Friday’s remarks.
“Restrictive monetary policy will likely play an increasingly important role. Getting inflation sustainably back down to 2% is expected to require a period of below-trend economic growth as well as some softening in labor market conditions.”
Some analysts have recently expressed hope that the Fed would begin to wind down and reverse its monetary tightening. However, Powell’s remarks suggest that policymakers remain committed to reaching that 2% inflation goal. As he noted in his conclusion on Friday, the Fed plans to “keep at it” until that goal is reached.