Jerome Powell says Fed could keep lifting interest rates sharply “for some time”

Federal Reserve Chair Jerome Powell delivered a stark message Friday: The Fed will likely impose more large interest rate hikes in coming months and is resolutely focused on taming the highest inflation in four decades.

Powell acknowledged that the Fed’s continued tightening of credit will cause pain for many households and businesses as its higher rates further slow the economy and potentially lead to job losses.

“These are the unfortunate costs of reducing inflation,” Powell said in the written version of a high-profile speech he is giving at the Fed’s annual economic symposium in Jackson Hole. “But a failure to restore price stability would mean far greater pain.

Powell’s message may disappoint investors who were hoping for a signal that the Fed might soon moderate its rate increases later this year if inflation were to show further signs of easing.

“This was a very clear push back on market expectations of a pivot from the Fed in 2023,” said Brian Coulton, chief economist with Fitch Ratings. “After being surprised by the intensity and duration of inflation pressures over the last 12 months, the Fed is now clearly determined to make sure high inflation does not become embedded.”

After hiking its key short-term rate by three-quarters of a point at each of its past two meetings — part of the Fed’s fastest pace of rate increases since the early 1980s — Powell said the Fed might ease up on that pace “at some point” — suggesting that any such slowing isn’t near.

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The Fed chair made clear that he expects rates to remain at levels that should slow the economy “for some time.”

“Powell’s key message today isn’t so much that the Funds Rate ceiling should be a lot higher than previously thought, but instead that rates may need to stay at that elevated level for longer than expected,” Adam Crisafulli, analyst with Vital Knowledge, said in a research note.

Recent economic data suggest the Fed’s monetary tightening is helping to take the edge off inflation. Consumer prices rose 6.3% in July from a year ago, down from 6.8% in June, as energy prices dropped sharply.

Lydia Boussour, lead U.S. economist with Oxford Economics, thinks such signals are encouraging, but still expects the Fed to hike rates by an additional 1.25% by year-end.

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