US Fed to move ‘carefully’ on interest rates, says Chair Jerome Powell

Powell said that the US monetary policy was slowing the economy as expected with a benchmark overnight interest rate “well into restrictive territory”, while noting that a key measure of inflation averaged 2.5% over the six months ending in October, near the Fed’s 2% target, Reuters reported.

The risks of the Federal Reserve slowing the economy more than necessary have become “more balanced” with those of not moving interest rates high enough to control inflation, Powell said.

Also Read: US stock market ends higher as Powell raises peak rate hopes; S&P logs highest close of year

He also noted that the “full effects” of the Fed’s 5.25 percentage points of rate hikes to date have likely not yet been felt, Reuters reported.

“We are getting what we wanted to get” out of the economy, Powell said during an event at Spelman College in Atlanta.

“Having come so far so quickly, the (Federal Open Market Committee) is moving forward carefully, as the risks of under- and over-tightening are becoming more balanced,” he said, referring to the central bank’s policy-setting committee, the Reuters report added.

As the Fed goes forward, “the data will tell us if we need to do more” rate hikes, Powell said.

In line with the statements of several Federal Reserve Governors, Powell reiterated that it was still too early to declare the Fed’s inflation fight finished, with prices rising 3.0% annually by the measure the central bank uses to set its target. 

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“We are prepared to tighten policy further if it becomes appropriate to do so,” he said.

Powell’s remarks also reflected increased confidence that the current 5.25%-5.50% policy rate may well be adequate to complete the job, Reuters reported.

Powell also said that the broad outlines of the hoped-for “soft landing” seemed to be falling into place, with the job market still strong even as growth in spending and output slows and price pressures abate.

Also Read: US markets surge in November on soft landing hopes; Fed’s shifting narratives raise caution

“My colleagues and I anticipate that growth in spending and output will slow over the next year, as the effects of the pandemic and the reopening fade and as restrictive monetary policy weighs on aggregate demand,” Powell said.

“The pace at which the economy is creating new jobs remains strong, and has been slowing toward a more sustainable level … Wage growth remains high, but has been gradually moving toward levels that would be more consistent with 2% price inflation over time, and real wages are growing again as inflation declines,” he said.

(With inputs from Reuters)

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Updated: 02 Dec 2023, 12:41 PM IST