Powell says more strong data like in September could warrant further interest-rate hikes

Federal Reserve Chairman Jerome Powell on Thursday said that the central bank is “attentive” to the recent economic data that shows resilient U.S. economic growth and demand for labor and if that trend continues, more interest rate hikes may be needed.

“We are attentive to recent data showing the resilience of economic growth and demand for labor. Additional evidence of persistently above-trend growth, or that tightness in the labor market is no longer easing, could put further progress on inflation at risk and could warrant further tightening of monetary policy,” Powell said in remarks to the Economic Club of New York.

The Fed chairman said the central bank is proceeding carefully and is grappling with “old and new” uncertainties.

The central bank is trying to balance the risk of raising interest rates too high with the risk of keeping them too low in order to bring down inflation.

Powell said the Fed was also “attentive” to tighter financial conditions caused by the recent run-up in longer-term bond yields BX:TMUBMUSD10Y.

“Persistent changes in financial conditions can have implications for the path of monetary policy,” Powell said.

The Fed has raised its policy interest rate to a level of 5.25%-5.5% over the past 19 months. Powell said the stance of policy is “restrictive” putting downward pressure on economic activity and inflation.

He said that the full effect of the rapid rate rises may also slow the economy in the coming months.

“Given the fast pace of tightening, there may still be meaningful tightening in the pipeline,” he said.

In his review of recent economic data, Powell sounded themes already raised by many of his colleagues at the central bank in their speeches over the past few weeks.

Powell welcomed the “lower readings” on inflation since the summer, a trend that continued in the most recent reports for September even though these most recent data points “were somewhat less encouraging.”

In his speech, Powell said Fed staff has forecasted that core inflation, as measured by the personal-consumption-expenditure index, will continue to soften in September. That data won’t be released until next week.

Powell said that inflation is still too high and “a few months of good data” are only the beginning of what is needed to bring inflation back to 2%.

Powell stuck to the view that the job market is slowing, even with the strong gain in payrolls in September.

He said that surveys show that consumers feel the labor market has returned to “pre-pandemic levels of tightness.”

He noted that economic growth has “consistently” surprised to the upside this year, including stronger-than-forecast gain in retail sales.

“Forecasters generally expect gross domestic product to come in very strong in the third quarter before cooling off in the fourth and next year,” Powell said.