Powell keeps the Fed’s hands free: satisfied with the decline in inflation, but new rate hikes possible with too strong growth

MILAN – The decline is good of inflation, which opens up the possibility of a pause in rate increases. But on the other hand, the level of price growth is still too high and, if too “hot” data on the US economy were to arrive, the American Central Bank would not hesitate to proceed with other “significant” tightening.

Fed Chairman Jerome Powell, he kept all roads open in his speech at the Economic Club of New York. His speech was also eventful by the disruption of some climate activists.

The Wall Street Journal reads his words for the emphasis placed on the decline in inflation recorded this summer and on the fact that there should be no new increases in the cost of money, unless the strength of the US economy – in particular its labor market – does not disperse the positive effect of reducing the cost of living.

Powell says Fed will proceed with ‘caution’ and that the latest data indicates that both statutory objectives – price stability and full employment – ​​are closer. “Given the uncertainties, risks and progress made, the Committee is proceeding with caution. We will make decisions on how much monetary policy will be tightened further and how long it will remain tight based on the totality of incoming data, the evolving outlook and the balance of risks,” he said in his speech.

But he also issued warnings. On inflation, for example, he explained that “it is still too high and a few months of positive data are just the beginning of what is needed to build confidence that inflation is falling sustainably towards our target.” For Powell “we cannot yet know how long these lower readings will persist , – he added – nor where inflation will settle in the coming quarters. While the road will likely be bumpy and take time, my colleagues and I are united in our commitment to drive inflation sustainably towards 2%.”

Much will depend on the overall ‘temperature’ of the economy: “The stance of policy is restrictive, meaning that restrictive policy is putting downward pressure on economic activity and inflation. Given the speed of tightening, It is possible that significant tightening is still in sight.”, has explained. A strong economy, on the other hand, is an obstacle to falling prices at the moment: “Economic growth has consistently surprised on the upside this year, as seen recently in the excellent retail sales data released early of the week. Gross domestic product is expected to be very strong in the third quarter before cooling in the fourth quarter and next year. However, the data suggests that a sustainable return to our 2% inflation target will likely require a period of below-trend growth and a further softening of labor market conditions.”

At this moment, then, “geopolitical tensions are very high and pose significant risks to global economic activity.” Powell then noted: “For me, I found the attack on Israel horrific, as did the prospect of further loss of innocent life.”