Key takeaways from Federal Reserve Chair Jerome Powell’s remarks prepared for the Kansas City Fed’s economic symposium on Friday:
Powell acknowledged the economic backdrop is more favorable now than it was a year ago. But he made it clear the US central bank is prepared to raise interest rates further if needed, noting that a resilient economy comes with risks that inflation could reaccelerate.
“At upcoming meetings, we will assess our progress based on the totality of the data and the evolving outlook and risks,” Powell said. “Based on this assessment, we will proceed carefully as we decide whether to tighten further or, instead, to hold the policy rate constant and await further data.”
The comments are consistent with expectations that the Fed will leave interest rates unchanged at the Sept. 19-20 meeting, with the possibility of a hike later in the year.
The Fed chief indicated central bankers will be watching the data to decide their next steps, adding that strong growth and a resurgence of strength in the labor market could require a stronger response. “Additional evidence of persistently above-trend growth could put further progress on inflation at risk and could warrant further tightening of monetary policy,” he said.
Interest rates are now high enough to be “restrictive,” meaning they are weighing on growth and inflation. Real interest rates “are now positive and well above mainstream estimates of the neutral policy rate,” Powell said, adding “we cannot identify with certainty the neutral rate of interest.”
“Two percent is and will remain our inflation target,” the Fed chief said.
