Powell sees ‘bumpy’ path forward as Fed weighs new rate hikes

The top Federal Reserve official declined to say Thursday whether the central bank would raise interest rates again before the end of the year, but he said he was encouraged by evidence that inflation and the labor market cooled this summer.

In prepared remarks at the Economic Club of New York, Fed Chairman Jerome Powell also warned “the path is likely to be bumpy and take some time.”

He also said if inflation remains stubbornly high due to elevated economic growth and labor demand, further monetary policy tightening — and potentially additional interest rate hikes — may be necessary.

“Inflation is still too high, and a few months of good data are only the beginning of what it will take to build confidence that inflation is moving down sustainably toward our goal,” Powell said in prepared remarks.

The Fed’s preferred inflation gauge, the headline personal consumption expenditure (PCE) index fell to 3.5 percent in August from its 7.1 percent peak in June 2022. September PCE inflation data will be published Oct. 27, and it’s estimated to remain above the Fed’s 2 percent inflation mandate.

The Fed has raised interest rates to their highest level in more than two decades, to a range of 5.25 to 5.5 percent, as it fights to bring inflation back to that target without triggering a recession. 

High interest rates have pushed mortgage rates to their highest level in more than two decades and credit card rates are crunching balance-carrying cardholders.

Powell has repeatedly said high interest rates are a tradeoff to bring down high inflation that has eaten into Americans’ wallets.

“The world counts on us to deliver low and stable inflation, that’s what we have to do,” Powell said Thursday. “We know that [higher interest rates are difficult for everybody], but ultimately, what we want to get back to is a long period of price stability.”

Interest rate hikes have not come at the price of significantly higher unemployment, as some predicted. Unemployment has remained at its lowest level in decades, which Powell called a welcome but “historically unusual” development.

Heightened geopolitical conflict also poses significant risks to the global economy that Powell said the Fed would continue to monitor. 

Global economists have expressed concern the conflict in Israel and the Gaza Strip could expand into the Middle East and increase commodity and energy prices as it did in the wake of Russia’s invasion of Ukraine in February 2022.

Updated at 2:09 p.m.