Powell also said the Fed believes its key rate is high enough to restrain the economy and cool growth, hiring and inflation.
But he said it is hard to know how high borrowing costs have to be to restrain the economy, “and thus there is always uncertainty” about how effectively the Fed’s policies are in reducing inflation.
As a result, the Fed “will proceed carefully as we decide whether to tighten further or, instead, to hold the policy rate constant and await further data,” Powell said. Since Powell spoke at last summer’s Jackson Hole conference, the Fed has raised its benchmark rate to a 22-year high of 5.4%. From a peak of 9.1% in June 2022, inflation hasPowell acknowledged the decline in inflation from its peak, which he called “very good news.” And consumer prices, excluding the volatile food and energy categories, have also begun to ease.
“But two months of good data,” he added, “are only the beginning of what it will take to build confidence that inflation is moving down sustainably toward our goal. Although inflation has moved down from its peak — a welcome development — it remains too high.” Substantially higher loan rates, a direct result of the Fed’s rate hikes, have made it harder for Americans to afford a home or a car or for businesses to finance expansions. At the same time, items like rent, restaurant meals and other services are still getting costlier. “Core” inflation, which excludes volatile food and energy prices, has remained elevated despite the Fed’s streak of 11 rate hikes beginning in March 2022.
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