Fed Chief: 'We Are Prepared to Raise Rates Further'

The continued resilience of the US economy could require further interest rate increases, Federal Reserve Chair Jerome Powell said Friday in a closely watched speech that also highlighted the uncertain nature of the economic outlook. Powell noted that the economy has been growing faster than expected and that consumers have kept spending briskly—trends that could keep inflation pressures high. He also reiterated the Fed's determination to keep its key rate elevated until price increases are reduced to the central bank's 2% target. "We are prepared to raise rates further if appropriate and intend to hold policy at a restrictive level until we are confident that inflation is moving sustainably down toward our objective," the Fed chair said, per the AP.

His speech—at an annual conference of central bankers—highlighted the uncertainties surrounding the economy and the complexity of the Fed's response to it. That marked a sharp contrast to his remarks from Jackson Hole a year ago, when he bluntly warned Wall Street that the central bank was going to continue its campaign of sharp rate hikes to rein in spiking prices. Powell also said the Fed believes its key rate is high enough to restrain the economy and cool growth, hiring, and inflation. But he said it is hard to know how high borrowing costs have to be to restrain the economy, "and thus there is always uncertainty" about how effectively the Fed's policies are in reducing inflation.

As a result, the Fed "will proceed carefully as we decide whether to tighten further or, instead, to hold the policy rate constant and await further data," Powell said. Since Powell spoke at last summer's Jackson Hole conference, the Fed has raised its benchmark rate to a 22-year high of 5.4%. From a peak of 9.1% in June 2022, inflation has slowed to 3.2%, though still above the Fed's 2% target. In the immediate aftermath of his speech, the markets gave up most of their morning's modest gains but were still in positive territory, per CNBC.

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