"Hawkish" Powell: "No Rate Cuts Until Inflation Is Under Control" (Update)

[Image source=AP Yonhap News]

[Asia Economy New York=Special Correspondent Seolgina Jo] "My message has not changed since Jackson Hole. We are firmly committed to achieving the 2% inflation target, and we will continue our tightening stance to achieve this." Jerome Powell, Chairman of the U.S. Federal Reserve (Fed), reaffirmed the hawkish policy of maintaining a 'restrictive' interest rate policy until inflation is firmly under control.

Chairman Powell stated at a press conference held immediately after the Federal Open Market Committee (FOMC) regular meeting on the afternoon of the 21st (local time), "We will not consider cutting interest rates until we are very confident that inflation is moving down toward the 2% target." He explained, "To ease inflation, it may be necessary for growth to remain below the long-term trend. The labor market is also likely to soften," adding, "We need to see clear evidence that inflation is easing."

The Fed announced on the same day that it would raise the federal funds rate by 0.75 percentage points from the previous 2.25?2.50% to 3.0?3.25%. Despite the high-intensity tightening, inflation has been stubborn, leading to a third consecutive giant step. This is the highest level since January 2008. The interest rate gap between Korea and the U.S. has widened again.

Chairman Powell emphasized, "Policy must remain at a restrictive level," adding, "This is to prevent greater pain in the future." He also acknowledged that current inflation has not fallen as much as the central bank initially expected. Citing core PCE and other indicators, he stressed, "This is not the value we wanted. We must continue to raise rates."

Furthermore, after mentioning that it inevitably takes time for the Fed's tightening to have policy effects, he added, "At some point, it may be appropriate to slow the pace of rate hikes." However, he did not clearly answer when the rate hike cycle would stop. When asked about the possibility of a soft landing, he evasively replied, "No one knows." This effectively confirmed the difficulty of a soft landing.

As the Fed's high-intensity tightening continues, caution is rising across the global economy. Chairman Powell also said, "We are well aware of what is happening" regarding the impact of the Fed's policy decisions on the U.S. and global economies. He stated, "We try to consider and include as many of these situations as possible when making rate decisions," but added, "We cannot be perfect." When asked how to know if tightening is excessive, he only responded, "Achieving the inflation target is our main goal."

Through the dot plot released together on the same day, the Fed indicated a more aggressive tightening than market expectations by projecting the benchmark interest rate to the high 4% range next year. According to the dot plot, the median rate for the end of this year rose by 1 percentage point from June to 4.4%. Among the 19 FOMC members, 9 projected 4.25?4.50%, and 8 projected 4.00?4.25%. Excluding today's giant step, this signals large rate hikes in the remaining two meetings this year. The rate is expected to rise to 4.6% by the end of next year, then fall to 3.9% at the end of 2024 and 2.9% at the end of 2025. Notably, 6 of the 19 FOMC members forecast rates will rise to 4.75?5.00% next year, leaving open the possibility of reaching the 5% range.

This content was produced with the assistance of AI translation services.