Powell said the labor market remains out of balance with demand exceeding supply and households still having cash saved up from the COVID-19 pandemic.
“The broader picture is an overheated labor market,” Powell said. “We keep looking for signs of a gradual softening, but it’s not obvious to me.
”Powell said the Fed would love to see vacancies and quits coming down. “I don’t see the case for a real softening yet.”
He also doesn’t see a wage-price spiral. He said the Fed would like to see rising wages as long as inflation stays within the Fed’s 2% inflation target range.
Powell also believes the labor market can cool without a big uptick in unemployment if job vacancies come down.
Federal Reserve Chair Jerome Powell doesn’t believe the central bank has overreacted in its base of interest rate increases.
“I don’t think we’ve overtightened,” Powell said during a press conference following the announcement that the bank’s policy-setting body unanimously voted to raise rates by 75 basis points. “I think it’s been a good and successful program.”
He warned more rate hikes lay ahead.
“We think there’s some ground to cover,” Powell said. “We may ultimately move to higher rates than forecast at the September meeting. No doubt we’ll have a discussion at the next meeting.”
Powell noted the ultimate level of interest rates is more important for the Fed than the pace.
Powell: Ultimate level of interest rates may be higher than previously expected
Federal Reserve Chair Jerome Powell says the ultimate end to interest rate increases will be higher than previously expected based on recent inflation data.
Powell emphasized the central bank is highly attuned to inflation risks. Powell noted, “The recent inflation data has again come in higher than expected.”
“Longer term inflation expectations remain well-anchored,” Powell said, while cautioning that the longer inflation persists, the more expectations of higher inflation will be intrenched.
The Fed noted officials are seeing the effects of monetary tightening in the most interest rate sensitive areas such as housing. However, “the labor market continues to be out of balance with demand exceeding the available supply of workers,” Powell said.
The Fed is taking “forceful steps to moderate demand,” Powell.
The Federal Reserve remains “highly attentive” to inflation, raising interest rates by an expected 75 basis points. One basis point is one hundredth of one percent.
The move puts the target range for the federal funds rate to 3.75% to 4%, the Federal Open Market Committee said in a statement.
“The Committee anticipates that ongoing increases in the target range will be appropriate in order to attain a stance of monetary policy that is sufficiently restrictive to return inflation to 2 percent over time,” the FOMC said.
The Fed will also continue to reduce its holdings of Treasury securities and agency debt and agency mortgage-backed securities.
The committee vote to raise rates was unanimous.
