Federal Reserve Board Chairman Jerome Powell testifies at a Senate Banking Housing and Urban Affairs Committee hearing on “The Semiannual Monetary Policy Report to the Congress” on Capitol Hill in Washington, U.S., June 22, 2023. REUTERS/Julia Nikhinson
Federal Reserve Chairman Jerome Powell reiterated Wednesday that more rate rises likely lie ahead for the central bank, and did not rule out a boost in the cost of borrowing at a policy meeting scheduled for the end of July.
“We’ve come a long way” with rate rises, Powell said at a European Central Bank conference held in Sintra, Portugal, noting that holding off on a rate rise earlier this month was a move to take stock of how the rate hike campaign is affecting the economy.
Powell said future policy actions will be driven by how the economy is performing, noting “the only thing we decided was not to raise rates at the June meeting.”
READ: Fed leaves rates unchanged, sees two small hikes by end of 2023
Powell said “I wouldn’t take, you know, moving at consecutive meetings off the table at all,” noting “the committee clearly believes that there’s more work to do, that there are more rate hikes that are likely to be appropriate” at some point over the course of the year.
The next rate setting Federal Open Market Committee meeting is scheduled for July 25-26.
Earlier this month, the Fed refrained from boosting its federal funds target rate for the first time since the central bank started raising rates in March 2022 when the target rate was at near zero levels, leaving it at between 5 percent and 5.25 percent. Fed officials have said the lack of action gave them time to take stock of the state of the economy while the cumulative impact of past rate hikes filter into financial conditions and economic activity.
But even with that pause, Fed forecasts from that gathering penciled in half a percentage point worth of further rate rises, raising the question of when those increases might happen.
In his appearance, Powell said the large and swift pace of rate rises that have defined much of the tightening campaign was appropriate when inflation was so high and monetary policy’s stance was out of line with that environment. But now, policy is closer to where it needs to be and there are uncertainties about how past hikes are moving through the economy, so it makes sense for the Fed to slow down with its increases.
“Although policy is restrictive, it’s not, it may not be restrictive enough and it has not been restrictive for long enough,” which leaves open the door for more increases, Powell said.
The central bank leader also said that the U.S. economy has thus far been quite resilient in the face of Fed action, and the job market has fared surprisingly well.
“It’s a constructive thing, that we’ve been able to raise rates 500 basis points with the expectation of going further, and we still have a very strong job market, but nonetheless one that is in fact cooling in just the way we would have hoped,” Powell said.
READ: US labor market remains resilient as job openings climb, layoffs drop
But the Fed leader did not take off the table the possibility that Fed action, aimed at bringing inflation back to 2 percent, could bring some economic pain.
“The least unlikely case is that we do find our way to better balance without a really severe downturn,” Powell said. But he added, “I think there’s a significant probability that there will be a downturn as well though, but it’s not to me the most likely case.”
Powell also said efforts to bring inflation back to target will take a long time. “I don’t see us getting back to 2 percent this year or next year,” and when it does happen, it’s likely to be in 2025, he said.