Powell Says Fed Will ‘Proceed Carefully’ on Further Rate Rises
economic activity. Demand for workers has cooled but if that process stalls, the Fed could have to raise rates, he said. After this speech, investors in interest-rate futures markets saw a nearly 20% chance that the Fed would raise rates at its next meeting, Sept.
19-20, but the probability of an increase at either of the Fed’s meetings in November and December edged up to around 50%, according to CME Group. Inflation has retreated from a 40-year high last summer, with the consumer-price index climbing 3.2% in July from a year earlier. That is well below the recent peak rate of 9.1% in June 2022.
Core prices, which exclude volatile food and energy categories, increased just 0.2% in both June and July, extending a broader slowdown in price pressures. “Two 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. “There is substantial further ground to cover." Last year, Powell delivered an unusually brief address that promised to bring down inflation even at the cost of a recession.
The speech jolted investors out of thinking the Fed saw a shorter and painless path to fighting inflation. Powell echoed some of those themes in a more nuanced speech on Friday. He explicitly rejected any idea that the Fed would change its 2% inflation target.
He also acknowledged uncertainty about just how high rates needed to rise to provide enough economic restraint. Inflation-adjusted interest rates have risen to historically high levels, putting them “well above mainstream estimates" of the so-called neutral rate that neither spurs nor slows economic activity, Powell said. “But we cannot identify with certainty the neutral rate of interest,
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