US Federal Reserve Prepared To Raise Interest Rates To Keep Inflation In Check: Chairman Jerome Powell

US Federal Reserve chairman Jerome Powell made it clear that the central bank has not yet concluded if its benchmark interest rate is high enough to be sure that inflation remains low.

The US Federal Reserve is prepared to raise interest rates further to keep inflation in check said chairman Jerome Powell on Friday. Powell said the US Fed would "proceed carefully as we decide whether to tighten further." However, he also made it clear that the US central bank has not yet concluded that its benchmark interest rate is high enough to be sure that inflation returns to the 2 per cent target.

"It is the Fed's job to bring inflation down to our 2 per cent goal, and we will do so...We have tightened policy significantly over the past year. Although inflation has moved down from its peak -- a welcome development -- it remains too high. We are prepared to raise rates further if appropriate, and intend to hold policy at a restrictive level until we are confident that inflation is moving sustainably down toward our objective," US Federal Reserve chairman Jerome Powell said at the Jackson Hole Central Banking Conference in Wyoming, United States. 

After a pause in June, the Federal Reserve increased its benchmark lending rate in July, reaching the highest level since 2001. This move was taken in response to inflation surpassing the 2 per cent target and also indicated the potential for further rate hikes ahead. The Federal Open Market Committee (FOMC), responsible for setting rates, raised the lending rate by a quarter percentage point, setting it within the range of 5.25 per cent to 5.5 per cent.

"The ongoing episode of high inflation initially emerged from a collision between very strong demand and pandemic-constrained supply," Powell on Friday adding that it was clear that bringing down inflation would depend on both the unwinding of the unprecedented pandemic-related demand and supply distortions and tightening of monetary policy. 

Recent data has raised concerns, according to Powell. Despite inflation slowing in some aspects, the economy's above-trend growth could jeopardise inflation control, potentially leading to further monetary tightening, he said. Powell acknowledged the difficulty in determining the current benchmark interest rate's effectiveness in moderating economic growth.

He reiterated standard Fed observations on inflation, highlighting easing goods inflation and potential housing inflation decline, but remained concerned about consumer spending and labor market conditions hindering a return to the 2 per cent inflation target.

"The lower monthly readings for core inflation in June and July were welcome, but two months of good data are only the beginning of what it will take to build confidence that inflation is moving down sustainably," Powell said talking about recent data of declining food and energy prices. 

"Restrictive monetary policy will likely play an increasingly important role. Getting inflation sustainably back down to 2 per cent is expected to require a period of below-trend economic growth as well as some softening in labor market conditions," Powell said.
 
"2 per cent is and will remain our inflation target," Powell said, adding that "We are committed to achieving and sustaining a stance of monetary policy that is sufficiently restrictive to bring inflation down to that level over time." 

Powell said that in the upcoming meeting, the US central bank will evaluate overall progress by considering data, evolving outlook, and associated risks. Following this assessment, the Fed will determine whether to continue tightening or maintain the current policy rate, awaiting more data. These statements align with anticipations that the Fed will keep interest rates unchanged during the September 19-20 meeting, potentially considering a rate hike later in the year.