Fed Chair Powell Signals More Rate Hikes Ahead to Tame Inflation
In a speech delivered on August 25, 2023 at the Kansas City Fed’s annual economic symposium in Jackson Hole, Wyoming, Federal Reserve Chair Jerome Powell sent a clear message that the central bank is prepared to continue raising interest rates in its effort to curb high inflation.
“We are strongly committed to returning inflation to our 2% objective,” Powell stated, acknowledging that inflation remains undesirably high despite the Fed’s policy tightening moves this year. “We understand that inflation is a major concern for families and businesses, and we are working hard to bring it back down.”
The Fed has already raised its benchmark interest rate four times in 2023, including back-to-back 75 basis point hikes in June and July. Markets widely expect the central bank to deliver another oversized rate increase at its next meeting in September, with Powell’s remarks viewed as confirmation of the Fed’s hawkish stance.
“Restoring price stability will likely require maintaining a restrictive policy stance for some time,” Powell cautioned. “The historical record cautions strongly against prematurely loosening policy.”
Financial markets reacted with volatility to Powell’s speech, as investors weighed the prospects of more aggressive Fed policy tightening that could potentially tip the economy into recession. Stocks fell initially before paring losses later in the day, while Treasury yields rose as expectations for future interest rate hikes increased.
With inflation running near a 40-year high at 8.5%, the Fed faces tremendous pressure to curb price increases without severely harming employment. Powell said the Fed will use its tools “forcefully” to combat inflation, though he conceded there are risks involved in doing so.
The Fed chief’s remarks suggest additional jumbo rate hikes are on the table for the remainder of 2023, as the central bank seeks to cool demand enough to align it with constrained supply. All eyes will now turn to the September 20-21 policy meeting, where the Fed may provide more details around its plans to reduce price pressures back toward its 2% goal.
