Fed Indicates Continued Interest Rate Hikes Amid Persistent Inflation Concerns

In recent remarks, Jerome Powell, the US Federal Reserve chairman, indicated that the central bank is prepared to hike interest rates further in its bid to counter persistently high inflation rates

by Faruk Imamovic
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Fed Indicates Continued Interest Rate Hikes Amid Persistent Inflation Concerns
© Getty Images News/Kevin Dietsch

In recent remarks, Jerome Powell, the US Federal Reserve chairman, indicated that the central bank is prepared to hike interest rates further in its bid to counter persistently high inflation rates. Speaking at an annual gathering of central bankers, Powell acknowledged that while the pace of inflation has slowed, it remains above the Federal Reserve's 2% target.

A Series of Elevations

Inflation in the US peaked at a staggering 9.1% last year. Although it has since decreased, the rate was still 3.2% for the year leading up to July. This comes in the wake of the central bank's aggressive policy measures which saw 11 consecutive rate increases since early 2022, bringing the key interest rate to 5.25%, a level not seen in over two decades.

"While inflation has moved down from its peak, a welcome development, it remains too high," Powell commented. His words echoed the sentiment of many economists and market watchers who have expressed concerns about the elevated prices.

Cary Leahey, an economist at Columbia University, remarked, "A more resilient than expected economy implies higher rates may or will be needed to cool things enough to reach the 2% inflation goal."

Globally Influencing Factors

The Federal Reserve's decisions do not take place in a vacuum.

Powell was quick to highlight global factors that continue to exert upward pressure on prices. Chief among these is Russia's ongoing invasion of Ukraine, which has had far-reaching economic implications. Additionally, despite the overall decline in inflation, Powell noted that food and energy prices "remained volatile".

The housing market, another crucial economic indicator, is also under Powell's lens. He pointed out that after a sharp decline in activity over the past 18 months, the sector is showing signs of resurgence. This uptick could necessitate further tightening of monetary policy.

Market analysts, like Michael Green of Simplify Asset Management, see Powell's statement as consistent with prior Federal Reserve announcements. "It's a reiteration that the Fed at best is going to go very slowly and cautiously," Green said.

In essence, while the Federal Reserve acknowledges the small victories in the battle against high inflation, Powell's remarks suggest that there's still a substantial journey ahead to bring inflation back in line with the bank's objectives.

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