As long as inflation is “too high,” according to the chairman of the US Federal Reserve, interest rates will continue to be raised.
At a yearly gathering of central bankers, Jerome Powell stated that the rate of price increases had slowed since their high.
It is still higher than the Fed’s 2% target, though.
Interest rates could climb further and stay higher for longer, according to Mr. Powell, who made the remarks in a speech to the Jackson Hole symposium in Wyoming.
US faces more interest rate
The key interest rate in the US is 5.25%, the highest level in 22 years, and after 11 straight rate increases since early 2022. Inflation in the US reached 3.2% in the year to July.
Although inflation has decreased from its peak, which is a great trend, Mr. Powell stated that it is still too high.
“We intend to retain policy at a restrictive level until the US faces higher interest rates. we are sure that inflation is moving sustainably down toward our objective, and we are prepared to hike rates further if warranted.”
The repercussions of Russia’s ongoing invasion of Ukraine were mention by Mr. Powell as one of the factors keeping prices high globally and he pled that the Fed would “proceed carefully.”
In addition, he noted that despite headline inflation US faces more interest rate declining from its peak of 9.1% last year, food and energy costs “remain volatile.”
In addition, Mr. Powell suggested that rates would rise again soon.
Cary Leahey, an economist at Columbia University, said: “Unfortunately, a more resilient than projected economy indicates higher rates may or will be need to chill things enough to attain the 2% inflation goal. while the Fed awaited further information.
Before achieving the 2% goal, Mr. Powell claim there was “considerable further ground to traverse.”
In addition, he stated that the Fed intended “to retain policy at a restrictive level” – remarks that market analysts had mostly anticipated.
Michael Green, chief investment strategist at Simplify US faces more interest rate Asset Management, stated that the Fed will, at best, go very slowly and cautiously.
Also, Mr. Powell mentioned the housing market.
where activity had not sufficiently subsided. “The housing industry is showing indications of rising up again after decelerating considerably over the past 18 months,” he said, adding that “may necessitate additional tightening of monetary policy.”
However, he stated that before interest rates could start to decline, the Fed needed a softening in the labor market.
Where salaries were still growing as firms continued to offer greater wages to recruit workers in an industry that was contracting.
Theoretically, greater earnings contribute to inflation, delaying the need for higher interest rates.
Interest rates will keep going up as long as inflation is “too high,” according to the US Federal Reserve chairman.
Jerome Powell said that the rate of price increases in the US had decreased since their high at a yearly gathering of central bankers.
Yet, it remains above the Fed’s 2% target.
According to Mr. Powell, who made the comments during a speech to the Jackson Hole conference in Wyoming, interest rates may increase even further and US faces more interest rate continue to rise for a longer period of time.
After 11 consecutive rate rises starting in early 2022, the main interest rate in the US is now 5.25%, the highest level in 22 years. In the US, inflation hit 3.2% in the year ending in July.
Mr. Powell said that even while inflation has reduced from its peak, which is a fantastic trend, it is still too high.
“We are prepare to boost rates further if necessary, but we plan to maintain policy at a restrictive level until we are certain that inflation is moving sustainably in the direction of our objective.”
Mr. Powell noted that one of the things keeping prices high globally is the fallout from Russia’s on-going invasion of Ukraine and vowed that the Fed will “proceed carefully.”
US faces more interest rate
The cost of food and energy “remain volatile,” he added, despite headline inflation having fallen from its peak of 9.1% last year.
Furthermore, Mr. Powell predicted that rates would increase once more shortly while the Fed awaited new data.
“Unfortunately, a more resilient than predictes economy suggests higher rates may or will be need to cool things off enough to meet the 2% inflation goal,” said Cary Leahey, an economist at Columbia University.
Mr. Powell assert that there was “much farther ground to go” before reaching the 2% goal.
However, he said words that market experts had mainly anticipated: the Fed wanted to “retain policy at a tight level.”
According to Simplify Asset Management’s senior investment.
Strategist, Michael Green, the Fed will, at best, move extremely slowly and cautiously. Mr. Powell also brought up the housing market, where activity still hasn’t adequately decreased.
After significantly slowing down over the previous 18 months, the housing industry is “showing signs of rising up again,” he said, adding that this “may need additional tightening of monetary policy.”
He did, however, assert that the Fed need a weakening in the labor market since wages were still rising as businesses continued to give higher wages to attract people in a declining industry before interest rates could start to decrease.
The demand for higher interest rates may theoretically be delay by rising wages’ impact on inflation.