Federal Reserve Chair Jerome Powell is leaving the door open for additional interest rate hikes to defeat inflation, he said Thursday in prepared remarks.
“We know that ongoing progress toward our 2% goal is not assured: Inflation has given us a few head fakes,” Powell said ahead of a conference hosted in Washington, DC, by the International Monetary Fund. “If it becomes appropriate to tighten policy further, we will not hesitate to do so.”
If the Fed hikes again, it will likely only be once, and may come during the US central bank’s upcoming policy meeting in December. However, investors are bullish about another pause in rate hikes next month, with financial markets pricing in a more than 90% chance of the Fed holding rates steady for a third time, according to the CME FedWatch Tool.
As Powell began to deliver his speech, he was interrupted by climate protesters who made their way onto the stage. It’s the second time in the past month that the Fed Chair has been interrupted during an appearance, after he was escorted off stage in October at the Economic Club of New York, and it clearly raises questions about security.
After returning to the podium, Powell made it clear the Fed is carefully balancing the risk that inflation could reignite versus the risk that the central bank could cause unnecessary economic damage.
He said “the unwinding of pandemic-related supply and demand distortions is playing an important role in the decline of inflation.” But he added that demand will likely have to slow for the central bank to be assured that inflation is on track to cool to 2%.
The US economy expanded at a scorching 4.9% annualized rate in the third quarter, thanks to robust consumer spending. American shoppers doling out for high-profile concerts, films and travel was a hallmark of the summer’s robust economic strength.
That could potentially be a headache for the Fed, since strong demand could be maintaining some upward pressure on prices. The Fed’s mechanism of addressing inflation is by deliberately slowing demand through higher interest rates.
“Going forward, it may be that a greater share of the progress in reducing inflation will have to come from tight monetary policy restraining the growth of aggregate demand,” Powell said.
This story is developing and will be updated.
Read the full article here