Fed’s Powell Hints at Continued Elevated Rates; Fedwatch Tool Indicates Near-Certain Hike Next Month

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Federal Reserve Chair Jerome Powell stressed on Thursday the U.S. central bank remains committed to bringing down inflation and will maintain restrictive monetary policy until prices cool. Speaking at the Economic Club of New York, Powell hinted that further interest rate hikes may be appropriate if price pressures persist.

Powell Signals for More Monetary Tightening as Fed Remains Focused on Inflation

In his remarks, Jerome Powell said inflation is still too high despite recent moderation. While headline and core PCE inflation have come down from their peaks earlier this year, the Fed chair said it is too early to be confident inflation will stay near the Fed’s 2% target.

“While the path is likely to be bumpy and take some time, my colleagues and I are united in our commitment to bringing inflation down sustainably to 2 percent,” Powell explained at the luncheon.

He further noted tightening financial conditions are putting downward pressure on inflation. But Powell warned persistent economic growth or tight labor markets could necessitate further policy tightening.

“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 told attendees.

The Fed chair stressed longer-term Treasury yields have risen sharply, tightening financial conditions. He said the central bank is monitoring these developments closely. “We remain attentive to these developments because persistent changes in financial conditions can have implications for the path of monetary policy,” Powell remarked.

The 10-year Treasury yield jumped to a 4.9% high this week hitting its highest level in 16 years. Since Powell’s statements, the CME Fedwatch tool shows a 99% chance a rate hike will occur next month. Investors expect the Fed will deliver another 0.25 percentage point rate increase at its November meeting.

Powell underscored the Fed’s unwavering commitment to reining in inflation, aiming for the central bank’s 2% target over the long haul. In essence, Powell conveyed that the Fed would be “policy restrictive until we are confident that inflation is on a path to that objective.”

Following his remarks, all four U.S. benchmark stock indices took a downturn. On the other hand, precious metals saw a modest uptick, while the crypto markets remained largely unfazed by the Fed chair’s pronouncements. The drop in U.S. equities was attributed to Powell’s speech in New York.

What do you think about Powell’s recent statements at the Economic Club of New York? Share your thoughts and opinions about this subject in the comments section below.