Federal Reserve Chair Jerome Powell warned the board is considering further interest rate hikes as inflation creeps up.
Powell said the Fed will remain flexible, noting inflation has come down from its peak but remains above the 2% target.
“Although inflation has moved down from its peak — a welcome development — it remains too high,” Powell said in his address at the Kansas City Fed’s annual retreat. “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.”
Inflation numbers hit a high of 7% in June 2022, which fell to around 3% in June 2023.
However, July’s reported number shows a slow creep back up to 3.3% in last month’s report.
“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 toward our goal,” he said.
“There is substantial further ground to cover to get back to price stability.”
He also acknowledged that there are risks to reacting both too much and 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,” he said. “Doing too much could also do unnecessary harm to the economy.”
Country Already Feeling the Pain
Since last year, the Fed has issued a series of 11 interest rate hikes that pushed the system’s key interest rate to its highest level in over two decades at 5.25%-5.5%.
Additionally, Powell rejected suggestions from Democrat legislators to raise its 2% inflation target, which would allow Congress more policy flexibility and deter further rate hikes as the election cycle picks up.
“Two percent is and will remain our inflation target,” he said pointedly.