Jerome H. Powell, the chair of the Federal Reserve, emphasized the central bank’s commitment to proceed cautiously with further rate moves in a speech on Thursday. However, he also noted that the Fed might need to raise interest rates further if the positive economic data continues.
Mr. Powell presented a balanced picture of the challenges faced by the Fed during his remarks at the Economic Club of New York. While the central bank aims to bring inflation under control, it also wants to avoid excessive tightening that could harm the economy.
This is a complex time for the central bank as the economy has been behaving unexpectedly. Although interest rates have been raised rapidly in the past 19 months, the growth has been surprisingly resilient. Consumers continue to spend, companies are hiring, and overall growth remains robust. As a result, some economists question whether the economy is slowing enough to bring inflation back to the Fed’s target of 2 percent.
Mr. Powell acknowledged the recent data showing the strength of economic growth and the demand for labor. He stated that further tightening of monetary policy might be warranted if there is evidence of persistently above-trend growth or if the tightness in the labor market stops easing.
“It may just be that rates haven’t been high enough for long enough,” Mr. Powell suggested. He also mentioned that there are no signs of policy being too tight at present.
Economists interpreted Mr. Powell’s remarks to mean that while the Fed is unlikely to raise interest rates at its next meeting in November, a potential rate increase is still on the table for December. The Fed’s final meeting of the year concludes on December 13.
Mr. Powell received praise for his balanced comments, given the current uncertainty in the economy. Although recent data shows strong growth, there is a possibility of a more significant slowdown ahead. The Fed has already raised short-term interest rates considerably, and these moves could still have an impact on slowing down the economy. In addition, long-term interest rates in the market have risen in the past two months, making borrowing more expensive for home and car purchases, which could affect growth.
Mr. Powell mentioned multiple factors that could have contributed to the increase in long-term rates, including higher growth, high deficits, the Fed’s decision to shrink its security holdings, and technical market factors.
Geopolitical tensions also add uncertainty to the global economic outlook. The ongoing conflict between Israel and Gaza could undermine confidence among businesses and consumers.
Investors struggled to interpret Mr. Powell’s remarks, as stocks were volatile during his speech. Higher interest rates are generally seen as negative for stock values. The S&P 500 ended the day almost 1 percent lower, while the 10-year Treasury yield rose close to 5 percent, a level not seen since 2007.
Mr. Powell reaffirmed the Fed’s commitment to bringing inflation under control, despite the complexity of the situation. Although consumer price increases have decreased since the peak in the summer of 2022, they remain at 3.7 percent, well above the pre-pandemic level of around 2 percent.
“Given the uncertainties and risks, and given how far we have come, the committee is proceeding carefully,” Mr. Powell concluded.
Joe Rennison contributed reporting.
Perspective: The Fed’s consideration of raising interest rates further reflects the delicate balance between controlling inflation and supporting economic growth. While the strong economic data suggests a need for tightening, uncertainties surrounding the stability of this growth and the impact of geopolitical tensions warrant a cautious approach. It will be crucial for the Fed to carefully monitor and analyze the evolving economic landscape to make informed decisions that support long-term stability and prosperity.
