(Washington) The President of the American central bank (Fed), Jerome Powell, warned the markets on Friday that it is too early to anticipate a reduction in interest rates, and that the Fed even stands ready to raise them again if necessary in the face of inflation.
“It would be premature to conclude with certainty that we have reached a sufficiently restrictive level, or to speculate on when the policy might be relaxed,” Jerome Powell said in a speech at Spelman College in Atlanta, Georgia.
“We are prepared to further tighten the policy if it proves appropriate to do so,” he even warned.
Fed rates are in a range of 5.25 to 5.50 percent, the highest in more than 20 years.
The Federal Reserve has raised them 11 times since March 2022, in order to bring down inflation, which had soared to a level not seen since the early 1980s.
“While lower inflation numbers in recent months are welcome, this progress must continue if we are to achieve our 2% goal,” the Fed Chairman commented.
Price growth in October was 3.0% year-on-year, according to the PCE index, the gauge favored by the Fed. So-called core inflation – excluding food and energy – is 3.5%.
This drop in inflation goes hand in hand with a slowdown in economic activity, observed since the beginning of autumn.
Rate increases, in fact, aim to make credit more expensive for households and businesses, in order to slow down consumption and investment, and ultimately ease the pressure on prices.
But it takes months for the Fed’s actions to have an effect on the real economy.
“The full effects of our tightening have probably not yet been felt,” warned Jerome Powell.
The Fed had therefore not raised rates during its last two meetings, in order to give itself time to observe the effects of its policy on the economy, and to avoid putting too much pressure on activity, which would risk cause a recession.
Fed officials anticipate “that spending and output growth will slow over the next year as the effects of the pandemic and the recovery fade and restrictive monetary policy will weigh on demand,” detailed the president of the institution.
The Fed boss, however, expressed his optimism about the job market, while historically, economic slowdowns caused by rate increases have often “resulted in significant job losses.”
However, “we have not observed this here, and my colleagues have always thought […] that it was possible to bring inflation down to 2% without this kind of job loss”, underlined Jerome Powell.
“We are on this path” and “hope we can stay there,” he further indicated.
“The employment situation still looks great and inflation is falling very quickly. And that’s exactly what we promised and what we want to happen,” also greeted Chicago Fed President Austan Goolsbee on Friday.
The next Fed monetary meeting will take place on December 12-13.