Federal Reserve Chair Jerome Powell delivered highly anticipated remarks at an Economic Club of New York luncheon on Thursday, arguing that inflation is “still too high” and warning additional monetary policy tightening may be needed.
Powell noted that shorter-term measures of core inflation over the most recent three and six months are now running below 3 percent but cautioned these shorter-term measures are often volatile.
“In any case, inflation is still too high, and a few months of good data are only the beginning of what it will take to build confidence that inflation is moving down sustainably toward our goal,” Powell said. “We cannot yet know how long these lower readings will persist, or where inflation will settle over coming quarters.”
He added, “While the path is likely to be bumpy and take some time, my colleagues and I are united in our commitment to bringing inflation down sustainably to 2 percent.”
Powell described the current stance of monetary policy as “restrictive” and reiterated Fed officials are willing to keeping policy restrictive until they are confident inflation is on a downward path.
Citing recent data showing the resilience of economic growth and demand for labor, Powell also warned additional monetary policy tightening could be needed.
“Additional evidence of persistently above-trend growth, or that tightness in the labor market is no longer easing, could put further progress on inflation at risk and could warrant further tightening of monetary policy,” he said.
Powell also addressed tightening financial conditions amid a recent increase in longer-term bond yields and said the Fed remains attentive to these developments, because persistent changes in financial conditions can have implications for the path of monetary policy.
The Fed chief concluded by saying a range of uncertainties complicate the central bank’s task of balancing the risk of tightening monetary policy too much against the risk of tightening too little.
“Doing too little could allow above-target inflation to become entrenched and ultimately require monetary policy to wring more persistent inflation from the economy at a high cost to employment,” Powell said. Doing too much could also do unnecessary harm to the economy.
“Given the uncertainties and risks, and how far we have come, the Committee is proceeding carefully,” he added. “We will make decisions about the extent of additional policy firming and how long policy will remain restrictive based on the totality of the incoming data, the evolving outlook, and the balance of risks.”
The Fed’s next monetary policy meeting is scheduled for October 31-November, with CME Group’s FedWatch Tool currently indicating a 97.0 percent chance the central bank will leave interest rates unchanged.