Powell says inflation is still too high and slower economic growth will likely be needed to bring it down

Federal Reserve Chairman Jerome Powell acknowledged recent signs of cooling inflation but said on Thursday that the central bank would “resolutely” stick to its 2 percent mandate.

In a highly anticipated speech to the Economic Club of New York, Powell stopped short of committing to a specific policy course but gave no indication that he was leaning toward raising interest rates.

As Powell spoke, traders in the futures market were ruling out any possibility of a rate hike in November and reducing the chances of a rate hike even in December. He acknowledged progress in bringing inflation back to manageable levels but stressed vigilance in pursuing the central bank’s objectives.

“Inflation is still too high, and a few months of good data is just the beginning of what is needed to build confidence that inflation is moving sustainably toward our target,” Powell said in prepared remarks. “We cannot yet know how long these lower levels will last or where inflation will settle in the coming quarters.”

“Although the road will likely be bumpy and take time, my colleagues and I are united in our commitment to sustainably reducing inflation to 2 percent,” Powell added.

The speech comes with questions about where the Fed will go from here after a series of rate hikes to cool inflation. Stocks rose after Powell spoke and the 10-year Treasury yield fell from its highs during the session.

Powell said he doesn’t think interest rates are too high right now.

“Do I have the feeling that politics is too strict at the moment? I would have to say no,” he said. Still, he noted that “higher interest rates are difficult for everyone.”

Powell noted the progress made toward achieving the Fed’s two goals.

In recent days, data has shown that while inflation remains well above the target rate, the pace of monthly increases has slowed, with the annual rate falling to 3.7% from more than 9% in June 2022.

“Data received in recent months shows continued progress toward achieving our two dual mandate goals of maximum employment and stable prices,” he said.

The speech was initially delayed by protesters from the group Climate Defiance, who stormed the podium at the club’s dinner, holding a sign that read “The Fed is Burning” surrounded by the words “Money, Future and Planet.”

After a brief delay, Powell indicated that labor and economic growth may need to slow to ultimately meet the Fed’s goal.

“Nevertheless, the record suggests that a sustained return to our 2 percent inflation target will likely require a period of below-trend growth and further weakening in labor market conditions,” Powell said.

Fed officials are using interest rate hikes in part to correct an imbalance between supply and demand in the labor market. The Fed has raised interest rates eleven times since March 2022 by a total of 5.25 percentage points. Starting from a Fed Funds interest rate close to zero, the key interest rate has reached its highest level in about 22 years.

“We are very far from the effective lower bound and the economy is coping well with it,” Powell said.

The comments come on the same day that initial jobless claims hit their lowest weekly level since early 2023, suggesting the labor market is still tight and could put upward pressure on inflation.

Strong job creation in September and a slow pace of layoffs could threaten progress on inflation.

“Additional evidence of continued above-trend growth or that labor market tensions are no longer easing could jeopardize further progress on inflation and justify further tightening of monetary policy,” he said.

In recent days, other Fed officials have said they believe the Fed can be patient from here. Even some members who favor tighter monetary policy have said they believe the Fed can halt rate hikes, at least for now, while they monitor what lagged impact the hikes are likely to have on the economy.

Markets generally expect the Fed to hold off on further rate hikes, but questions remain about when officials might start cutting rates.

Powell was noncommittal about the future of politics.

Given the uncertainties and risks and the progress made so far, the Committee is proceeding cautiously. “We will make decisions about the extent of further policy tightening and how long policy will remain restrictive based on the totality of incoming data, the evolving outlook and the balance of risks,” he said.