Powell: "Additional Rate Hikes Will Be Carried Out Cautiously" (Comprehensive)

Jerome Powell, Chairman of the U.S. Federal Reserve (Fed), indicated a still hawkish monetary tightening policy at the Jackson Hole meeting on the 25th (local time), although it was more moderate than last year. He stated, "Inflation is easing, but there is still a long way to go," and "We will raise interest rates further if necessary." He did not ease his caution about the possibility of additional hikes while inflation has not yet been firmly controlled. Powell's remarks at this year's Jackson Hole meeting were evaluated as revealing his dilemma between the risks of insufficient tightening and excessive tightening.

At the Jackson Hole meeting, a global central bank governors' conference held in Wyoming, Powell said, "If deemed appropriate, we are prepared to raise the benchmark interest rate further," and "We will maintain a restrictive monetary policy until we are confident that inflation is consistently declining toward the target level."

However, regarding additional rate hikes, he emphasized twice that they would "Proceed Carefully," highlighting that an urgent rate hike is not necessary at the upcoming September Federal Open Market Committee (FOMC) regular meeting. He said, "Considering how far we have come, we are in a position to proceed carefully with the rate hike decision at the next meeting."

Regarding the current inflation level, he diagnosed, "It is a welcome development that inflation has fallen from its peak, but it remains at a high level." The U.S. consumer price inflation rate peaked at 9.1% in June last year and has continued to decline, falling to 3.2% in July. However, Powell evaluated this as "only the beginning of building confidence that inflation is consistently declining toward the target."

[Image source=Reuters Yonhap News]

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Powell's diagnosis is that to sustainably lower inflation to the 2% target, economic growth below trend and easing of labor market overheating are necessary. He said, "We are paying attention to signals that the economy may not cool as much as expected," and "If additional evidence emerges that growth above trend persists, it could increase the risk of rising inflation, which would warrant further tightening policies."

He also assessed that although the labor market overheating is improving, it has not sufficiently calmed. Powell said, "We expect the labor market rebalancing to continue," but added, "If evidence arises that the easing of labor market overheating is not sustained, this too will require a monetary policy response."

[Image source=AP Yonhap News]

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

Powell diagnosed that monetary policy affects the economy with a lag, and the unique demand-supply mismatches in the global economy in recent years have increased policy uncertainty. He said this policy uncertainty "complicates our task of balancing between under- and over-response."

[Image source=AP Yonhap News]

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The New York stock market rose on relief that last year's Jackson Hole meeting trauma did not repeat this year. On this day at the New York Stock Exchange (NYSE), the Dow Jones Industrial Average closed at 34,346.90, up 0.73% from the previous session. The S&P 500 index rose 0.67% to 4,405.71, and the Nasdaq index closed up 0.94% at 13,590.65.

Ryan Detrick, strategist at The Carson Group, said, "It was not as hawkish as some feared," and "Compared to last year, this time it was a bit more moderate. The lack of major changes regarding future hikes is a welcome sign."

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