Powell Keeps Rate Hikes on the Table. But He Shifted His Tone in One Subtle Way.
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Updated Dec 01, 2023 4:53 pm EST / Original Dec 01, 2023 1:00 am EST
Federal Reserve Chair Jerome Powell said that while the central Friday bank has made significant progress on bringing inflation down to its 2% target, it’s still prepared to tighten monetary policy further if needed.
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“We are prepared to tighten policy further if it becomes appropriate to do so,” Powell said in a speech at Spelman College ahead of a fireside chat with Spelman College President Helene Gayle focused on the challenges of the post-Covid economy in the U.S.
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It would be premature to conclude that the Fed Has achieved a sufficiently restrictive monetary policy stance—or to speculate on when rate cuts may start, Powell said. Especially when the Fed’s preferred inflation gauge, released Thursday, still shows inflation at 3.5% in October when calculated excluding the more volatile food and energy prices.
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”We have to restore price stability because price stability is really the bedrock of the economy,” Powell told attendees.*
Powell said he and his fellow Fed policy makers are proceeding carefully, making decisions on a meeting-by-meeting basis based on the “totality of the incoming data” and the balance of risks.
- That’s due, in part, to the fact that while Powell said he believes the 11 rate hikes the Fed has implemented so far have shifted monetary policy “well into restrictive territory,” the full effects of rate hikes have likely not yet been felt.
Roach said he believes that Fed watchers latched onto a slight change in Powell’s tone.
- A few weeks ago, Powell said ’policy was restrictive.’
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Today, he noted policy was ‘well into restrictive territory,’a subtle, but perhaps key, shift.
The next Federal Open Market Committee meeting is set to take place Dec. 12-13. Markets are pricing in another pause.
- After Powell’s remarks, there was a 99.6% probability that officials will keep the benchmark rate steady at the conclusion of the meeting, according to the CME FedWatch Tool.