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- The Federal Reserve could raise its benchmark interest rate again if inflation doesn’t stay on its recent downward path, Fed chair Jerome Powell said.
- High interest rates for things like mortgages and business loans are unlikely to fall anytime soon, as Powell made no mention of when the Fed might start to cut rates.
- Traders rate the chances of another rate hike before the end of the year as a tossup.
If you were looking to Federal Reserve Chair Jerome Powell for clues about whether the Fed will raise rates again at future meetings, his most recent speech probably left you in the dark.
The central bank is determined to get inflation down to its goal of a 2% annual rate and keep it there, Powell said in a highly-anticipated speech at an economics symposium in Jackson Hole, Wyoming on Friday. While acknowledging that recent reports on consumer price increases have shown inflation slowing, Powell said it was still too high and the Fed would raise rates more if needed.1
“As is often the case, we are navigating by the stars under cloudy skies,” Powell said. “At upcoming meetings, we will assess our progress based on the totality of the data and the evolving outlook and risks. Based on this assessment, we will proceed carefully as we decide whether to tighten further or, instead, to hold the policy rate constant and await further data.”
The rate hikes have also caused banks to get choosier about who they lend money to, making it even harder for businesses to hire and expand, and for individuals to make major purchases.
The Fed’s goal is to reduce spending and allow supply and demand to rebalance, pushing inflation down. Inflation has receded since the Fed’s rate hike campaign began, with consumer price increases falling to a 3.2% annual increase as of July, down from 9.1% in June 2022.
A major risk of the rate hikes is that the economy could slow down so much that there’s a recession and mass layoffs—a danger that Powell acknowledged in his speech.
After digesting Powell’s speech and other ambivalent remarks by Fed officials, the prospect of further rate hikes this year are basically a tossup in November and December, according to the CME Group’s FedWatch tool, which forecasts rate hikes based on fed futures trading data.2
Notably absent from the speech was any discussion of when the Fed might begin to shift out of inflation-fighting mode and start lowering its interest rate.
“The overall tone of Chair Powell’s Jackson Hole speech is one of cautious optimism coupled with clear determination to take no chances with the inflation outlook; if that requires further tightening, in the Fed’s view, then so be it,” Ian Shepherdson, chief economist at Pantheon Macroeconomics, said in a commentary. “But nothing is guaranteed.”
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