United States Federal Reserve Chairman Jerome Powell warned that the central bank could decide to raise interest rates even higher as the inflation in the country remains "too high."
During an annual gathering of central bankers, the official said that the pace of price increases had fallen from a peak position. However, he warned that the rate is still above the Fed's 2% target.
Fed Warns of Potential Rate Increases
During a speech at the Jackson Hole symposium in Wyoming, He added that interest rates could go even higher and remain there for longer if the situation continues as it is now. Inflation in the US hit 3.2% in the year to July as the key interest rate was at 5.25%.
This is the highest it has ever been in more than two decades after 11 consecutive rate increases that started in early 2022. Powell said that the Fed is prepared to raise rates "if appropriate" and plans to hold policy at a restrictive level to address high inflation, as per BBC.
The official added that the Fed would be going forward carefully, citing the effects of Russia's continued invasion of Ukraine as one factor that has kept prices high worldwide. He also noted that food and energy prices remain volatile despite headline inflation decreasing from last year's high of 9.1%.
The Federal Reserve chairman hinted at more rate rises while the Fed waits for further data. He said that, unfortunately, a more resilient than expected economy implies that higher rates could be needed to cool things down enough to reach the inflation goal of 2%.
A chief investment strategist at Simplify Asset Management, Michael Green, said it was simply a reiteration that the Fed, at best, will go very slowly and cautiously regarding raising rates.
A Stronger-Than-Expected Economy
Since March 2022, the Fed has increased rates by 5.25%, and by the Fed's preferred gauge, inflation has moved down to 3.3%, less than half of its peak of 7% last summer. Powell's remarks during the symposium suggest that the economy is difficult to read, according to Reuters.
At day's end, futures contracts tied to the Fed policy rate were priced at less than a 20% chance of a rate hike in September. However, a better-than-50% chance of the policy rate ending the year is 5.5% to 5.75%, which is a quarter point higher than the current range.
Powell's speech highlighted the uncertainties regarding the economy and the complexity of the Fed's response to the situation. His statements also contrast with his remarks in Jackson Hole that were made a year ago. At the time, he warned that the Fed would continue its campaign of sharp rate hikes to control rising prices.
A chief economist at Inflation Insights, Omar Sharif, said that the chair had his "finger on the trigger" regarding the possibility of another rate hike. Americans are having a more difficult time affording a home or a car or business because of substantially higher loan rates, which is a direct result of the Fed's rate hikes, said PBS News Hour.
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