Federal Reserve Chair Jerome Powell raised the possibility of more interest rate hikes in prepared remarks Friday as inflation remains above the Fed’s target rate.
Powell hinted that the Fed will raise interest rates in the future if factors like high inflation, a hot labor market and sustained economic growth persist, according to a speech given by Powell at the Jackson Hole Economic Symposium. Interest rates have been raised 11 times since March 2022 in an effort to fight inflation, bringing the federal funds rate within a range of 5.25% and 5.50%, the highest rate since January 2001.
“Turning to the outlook, although further unwinding of pandemic-related distortions should continue to put some downward pressure on inflation, restrictive monetary policy will likely play an increasingly important role,” Powell said during the speech. “Getting inflation sustainably back down to 2 percent is expected to require a period of below-trend economic growth as well as some softening in labor market conditions.”
Inflation rose in July to 3.2% year-over-year from 3.0% in June, after coming down from 9.1% in June 2022. Core CPI, which excludes the volatile categories of energy and food, remained high at 4.7% in July as opposed to 4.8% in June.
“We are attentive to signs that the economy may not be cooling as expected,” Powell said. “So far this year, GDP (gross domestic product) growth has come in above expectations and above its longer-run trend, and recent readings on consumer spending have been especially robust. Additional evidence of persistently above-trend growth could put further progress on inflation at risk and could warrant further tightening of monetary policy.”
The economy exceeded expectations in the second quarter of 2023 with, GDP increasing by 2.4% as opposed to the 2.0% that was expected by economists. Economic growth was also revised up for the first quarter of 2023 from 1.1% to around 2%.
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