Powell: "Inflation Too High... Additional Rate Hikes If Necessary" (Update)

"Maintain Inflation Target at 2%"

Jerome Powell, Chairman of the U.S. Federal Reserve (Fed), stated at the Jackson Hole meeting on the 25th (local time) that inflation is too high and that he would raise interest rates further if necessary. While reaffirming a hawkish (preference for tightening) stance, his tone was considered more moderate compared to his one-sided hawkish speech at last year’s Jackson Hole event.

[Image source=Yonhap News]

At 10:05 a.m. Eastern Time (11:05 p.m. Korean time) on the same day, Powell delivered a speech at the annual economic symposium held in Jackson Hole, Wyoming, saying, "It is a welcome development that inflation has come down from its peak, but it is still too high."

He acknowledged that the recent slowdown in price increases was due to tight monetary policy and the easing of supply chain disruptions caused by COVID-19, but warned, "Despite recent positive assessments, there is still a long way to go," maintaining a cautious stance. The U.S. consumer price inflation rate surged to 9.1% in June last year but dropped to 3.2% in July this year.

Powell emphasized, "We are prepared to raise interest rates further if appropriate," adding, "We will maintain policy at a restrictive level until we are confident that inflation is consistently moving down to our target." He had previously warned in his Jackson Hole speech a year ago that efforts to lower the inflation target to 2% would involve "some pain."

At the Federal Open Market Committee (FOMC) meeting scheduled for next month, both the possibility of further rate hikes and maintaining the current level are open.

Powell mentioned, "If we take too little (tightening) action, inflation could become entrenched above our target, and if we take too much action, it could cause unnecessary harm to the economy," highlighting that there are risks regardless of the direction of monetary policy. He added, "As is often the case, we are navigating by the stars under a cloudy sky," urging preparedness for uncertainty.

He stated that the September monetary policy decision depends on incoming data. Powell explained, "We are in a position to proceed cautiously by assessing incoming data, evolving outlooks, and risks at the upcoming meeting." He added, "Based on this assessment, we will carefully decide whether to tighten further or wait for more data while holding policy rates steady."

However, he did not provide any hints that the Fed is ready to pivot, i.e., start cutting interest rates, anytime soon.

He drew a line against recent calls to raise the inflation target. Some in academia and politics have argued that the Fed should raise the inflation target from the current 2% to 3%. Powell dismissed this, saying, "2% is our inflation target and will remain so going forward."

He also excluded judgment on claims that the neutral interest rate is rising. He stated, "We cannot reliably identify the neutral rate. There is always uncertainty about the exact level of restrictive monetary policy." This reaffirmed the Fed’s existing stance that monetary policy will not be based on the neutral rate.

Although Powell left open the possibility of further rate hikes, the market interprets his remarks as more moderate than last year’s Jackson Hole speech. Last year, Powell’s bombshell remarks about continuing to raise rates despite the pain to households and businesses to curb inflation triggered the "Powell shock" in global financial markets.

Michael Aron, Chief Investment Strategist at State Street Global Advisors, said, "Powell is still walking a tightrope," and assessed, "This year, he seems to be showing satisfaction with how far monetary policy has come and how much inflation has decreased." However, he added, "He still appears to be watching carefully and maintaining the view that there is more work to do."

The New York stock market is currently flat in early trading as it digests Powell’s Jackson Hole speech. As of 11:28 a.m., the Dow Jones Industrial Average is up 0.31% from the previous close, and the large-cap-focused S&P 500 is up 0.1%. In contrast, the tech-heavy Nasdaq is down 0.06%. This contrasts with last year’s sharp market drop following Powell’s speech.

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