Federal Reserve Chairman Jerome Powell gave a speech at the Economic Club of New York where he addressed recent signs of cooling inflation and emphasized the central bank's commitment to its 2% mandate. While Powell did not provide specific details about future policies, he indicated that he was not leaning towards raising interest rates. As a result, futures market traders eliminated the possibility of a rate hike in November and reduced the chances of a move in December.
Powell acknowledged the progress made in bringing inflation down to a manageable level but emphasized the need for vigilance in achieving the central bank's goals. He stated that inflation is still too high and that it would take more than a few months of good data to build confidence that inflation is moving sustainably towards the target. Powell also noted that it is difficult for everyone when interest rates are higher, but he does not believe rates are too high at the moment.
Despite the uncertainties, Powell expressed unity among his colleagues in their commitment to bringing inflation down sustainably to 2%. He highlighted the progress towards the Federal Reserve's twin goals of maximum employment and stable prices, noting that recent data has shown ongoing progress.
The speech was briefly delayed by protesters from the group Climate Defiance, but Powell eventually addressed the labor market and economic growth. He suggested that a sustainable return to the 2% inflation goal may require a period of below-trend growth and further softening in labor market conditions.
Since March 2022, the Fed has raised interest rates 11 times in an attempt to address supply-demand imbalances in the job market. Powell stated that the economy is handling the rate hikes well and that the current level of rates is far from the effective lower bound.
However, Powell also acknowledged that robust job creation and a tight labor market could put progress on inflation at risk. He mentioned that additional evidence of persistently above-trend growth or the labor market no longer easing could warrant further tightening of monetary policy.
While markets expect the Fed to hold off on additional rate hikes, there are still uncertainties about when officials might begin cutting rates. Powell remained noncommittal about future policies, stating that decisions will be based on incoming data, the evolving outlook, and the balance of risks.