Federal Reserve Chair Jerome Powell signaled on Thursday that the central bank could opt to keep interest rates steady at its upcoming policy meeting. However, he also issued a cautious note, stressing that inflation in the United States remains elevated, and further interest rate increases might be necessary if the robust economic performance persists.
Powell’s remarks were made during a speech at the Economic Club of New York and were briefly interrupted by protesters. Despite the interruption, Powell continued to address the nation’s monetary policy, stating, “Given the uncertainties and risks, and how far we have come, the committee is proceeding carefully.”
The suggestion that the central bank might not pursue higher rates in its November meeting aligns with recent comments from other Federal Reserve officials. They have been advocating for patience as policymakers assess the economic trajectory and the pace of inflation, which will play a pivotal role in determining whether interest rates should be raised further.
Powell emphasized the Federal Reserve’s delicate balancing act between taking too much or too little action concerning interest rates. He stated, “Doing too little could allow above-target inflation to become entrenched and ultimately require monetary policy to address persistent inflation, potentially at a high cost to employment.” Powell further noted, “Doing too much could also cause unnecessary harm to the economy.”
The statements by the Federal Reserve Chair were in response to the central bank’s decision to maintain unchanged interest rates during its last meeting in September. Additionally, the Fed indicated the need for another rate hike later in the year to reach its 2% inflation target.
Market expectations currently align with the Federal Reserve’s interest rate range of 5.25%-5.50%, with most investors anticipating that these levels will remain unchanged at the November meeting.
The Federal Reserve has been closely monitoring a recent surge in long-term bond yields, which have risen by more than 50 basis points since the policy meeting on September 20th. In a question-and-answer session, Powell was asked if higher yields could reduce the need for further rate hikes, to which he responded, “It could… that remains to be seen.”
Powell’s statements have effectively set the stage for the next gathering of the Federal Open Market Committee scheduled for November 1st. He emphasized that while inflation exhibited progress over the summer, data from September showed slightly less encouraging trends. Both Powell and other Fed officials continue to stress the necessity of proceeding with caution, closely evaluating economic trends and inflation rates when considering future rate adjustments.
Despite previous interest rate increases, it is increasingly apparent that the Federal Reserve must maintain a watchful eye on not only economic indicators but also bond yields and financial conditions to make well-informed decisions. Striking a balance between vigilance and caution remains essential. The upcoming November policy meeting will be a crucial determinant in the Federal Reserve’s future course of action.
Source: Yahoo Finance
