US economys solid growth could require additional Fed hikes to fight inflation: Federal Reserve Chair Jerome Powell

The continued resilience of the U.S. economy could require further interest rate increases, Federal Reserve Chair Jerome Powell said Friday in a closely watched speech that also highlighted the uncertain nature of the economic outlook.

Powell noted that the economy has been growing faster than expected and that consumers have kept spending briskly — trends that could keep inflation pressures high. He also reiterated the Fed's determination to keep its key rate elevated until price increases are reduced to the central bank's 2% target.

“We are prepared to raise rates further if appropriate and intend to hold policy at a restrictive level until we are confident that inflation is moving sustainably down toward our objective,” the Fed chair said.

His speech — at an annual conference of central bankers — highlighted the uncertainties surrounding the economy and the complexity of the Fed's response to it. That marked a sharp contrast to his remarks from Jackson Hole a year ago, when he bluntly warned Wall Street that the central bank was going to continue its campaign of sharp rate hikes to rein in spiking prices.

Powell also said the Fed believes its key rate is high enough to restrain the economy and cool growth, hiring and inflation. But he said it is hard to know how high borrowing costs have to be to restrain the economy, “and thus there is always uncertainty” about how effectively the Fed's policies are reducing inflation.

As a result, at future meetings the Fed “will proceed carefully as we decide whether to tighten further or, instead, to hold the policy rate constant and await further data,” Powell said.

Since Powell spoke at last summer’s Jackson Hole conference, the Fed has raised its benchmark rate to a 22-year high of 5.4%. From a peak of 9.1% in June 2022, inflation has slowed to 3.2%, though still above the Fed’s 2% target.

But substantially higher loan rates have made it harder for Americans to afford a home or a car or for businesses to finance expansions. And items like rent, restaurant meals and other services are still getting costlier.

“Core” inflation, which excludes volatile food and energy prices, has remained elevated despite the Fed’s streak of 11 rate hikes beginning in March 2022.The overall economy has nevertheless powered ahead.

Hiring has remained healthy, confounding economists who had forecast that the spike in rates would cause widespread layoffs and a recession. Consumer spending keeps growing at a healthy rate. And the U.S. unemployment rate stands exactly where it did when Powell spoke last year: 3.5%, barely above a half-century low.

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