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Powell Expresses Concern Over Persistent Inflation, Signals Potential for Further Rate Hikes

Federal Reserve Chair Jerome Powell expressed concerns on Friday regarding ongoing inflation and suggested that there may be more interest rate hikes on the horizon.

Even though Powell recognized advancements in addressing inflation, he emphasized that it's still higher than the desired threshold. He signaled that the Federal Reserve won't rush into any decisions, but he didn't indicate a willingness to relax their stance in the immediate future.

Speaking at the Kansas City Fed’s annual gathering in Jackson Hole, Wyoming, Powell stated, "Even if inflation has decreased from its previous highs, it's still unacceptably high. We're ready to adjust rates further if needed, aiming to ensure a steady decrease in inflation towards our target."

This speech echoes his sentiments from last year’s address at Jackson Hole, where he indicated challenges in meeting the 2% inflation target.

Although recent data showed a favorable trend for the Fed with a 0.2% core inflation rate for June and July, Powell remarked, "Two months of positive data is just the start. We need more evidence to be certain that inflation is consistently heading towards our goal.”

He stressed the importance of striking the right balance in decision-making to avoid any negative impact on the economy. "Acting too rashly could cause inflation to become a long-term issue or potentially hurt the economy," Powell noted.

Market reactions to Powell's speech were mixed. Remembering last year when stocks dropped after Powell’s Jackson Hole address, Ryan Detrick of Carson Group said, "While Powell’s tone was cautionary, it was not as aggressive as some had anticipated."

Following 11 previous interest rate increases, the current rate stands between 5.25% and 5.5%, a high not seen in over two decades. The Federal Reserve also downsized its balance sheet, with about $960 billion worth of bonds being cleared since June 2022.

Market speculators anticipate a possible rate hike in November. Powell, however, gave no definite direction on the matter, only emphasizing a cautious approach based on incoming data.

Powell dismissed any immediate consideration of a rate cut. "We will monitor the data and assess our next steps cautiously," he reiterated.

He addressed the challenge of estimating inflation's broader components, emphasizing core inflation, which omits fluctuating food and energy prices. Powell highlighted the importance of nonhousing services, like health care and transportation, in determining inflation trends.

Despite some calls to raise the 2% inflation target to allow more flexibility, Powell stood firm on the existing goal. Harvard economist Jason Furman, responding on the platform formerly known as Twitter, said, "While Powell's approach to current monetary policy is commendable, I wish he hadn’t dismissed the idea of revising the target."

Lastly, Powell chose not to delve deeply into the topic of the neutral rate of interest, a subject he had addressed in 2018. He acknowledged that the full impact of previous rate hikes hasn't been fully realized, hinting at a need for caution in future policy decisions.


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