Powell Signals Fed Will Raise Rates If Needed, Keep Them High

Federal Reserve Chair Jerome Powell said the US central bank is prepared to raise interest rates further if needed and intends to keep borrowing costs high until inflation is on a convincing path toward the Fed’s 2% target.

“Although inflation has moved down from its peak — a welcome development — it remains too high,” Powell said in the text of a speech Friday at the US central bank’s annual conference in Jackson Hole, Wyoming. “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 chief welcomed the slower price gains the US economy has achieved thanks to tighter monetary policy and further loosening of supply constraints after the pandemic. However, he cautioned that the process “still has a long way to go, even with the more favorable recent readings.”

At the same time, Powell suggested the Fed could hold rates steady at its next meeting in September, as investors expect.

“Given how far we have come, at upcoming meetings, we are in a position to proceed carefully as we assess the incoming data and the evolving outlook and risks,” he said.

Treasury yields initially dipped as Powell spoke, with the policy-sensitive two-year little changed around 5.04%. The 10-year yield declined to 4.225%. Investors held steady expectations for a rate hike at the Fed’s Oct. 31-Nov. 1 meeting at around 60%, based on swap contracts.

The remarks were in line with Powell’s character and communication for all of 2023: He is singularly focused on the mission of restoring price stability, and further tightening remains on the table to get back to 2% if necessary.