Jerome Powell Discusses Rate Hikes and Inflation Outlook

On Tuesday, Federal Reserve Chair Jerome Powell discussed the latest interest-rate increase and the outlook for inflation. Speaking at the Economic Club of Washington, D.C., Powell said he expects “significant progress with inflation this year” and that it is the Fed’s job to produce it.^[0] He acknowledged that the disinflationary process has begun, but that it has a long way to go.^[1] He also said that if economic data continues to come in hot, the Fed may need to raise rates more than is currently priced in.^[2]

In response to the January jobs report, which showed a much stronger-than-expected 517,000 jobs added, Powell said this process was likely to take some time, and that it was a good thing that inflation was starting to come down not at the expense of a strong labor market.

The Federal Reserve chair also discussed that ongoing rate increases will be appropriate, saying that the Fed expects “a couple more rate hikes” to get borrowing costs high enough to meaningfully slow the economy. Minneapolis Fed President Neel Kashkari also commented on the strong jobs report, saying that he was sticking to his assessment that rates need to climb to around 5.4 percent.^[3]

Overall, markets are indicating the Fed won't have to raise rates as high, or for as long, as it continues to say it will, largely because the rate of inflation will fall faster than the consensus expects.^[4] However, the central bank's commitment to reaching its pre-pandemic 2% inflation target means that policy makers are likely to remain vigilant, and that further rate hikes should be expected this year.^[5]

0. “Markets Today: Hawkish RBA, open Powell | Business Research and Insights” Business Research and Insights, 7 Feb. 2023, https://business.nab.com.au/markets-today-hawkish-rba-open-powell-58146/

1. “Dow Jones Futures Fall After Market Rallies On Powell, AI Arms Race; Fortinet, Enphase Jump On Earnings | Investor's …” Investor's Business Daily, 8 Feb. 2023, https://www.investors.com/market-trend/stock-market-today/dow-jones-futures-market-rallies-on-powell-microsoft-ai-arms-race-fortinet-enphase-jump-on-earnings/

2. “Gold price digests Fed Chair Powell's mixed messages around disinflation and more rate hikes” Kitco NEWS, 7 Feb. 2023, https://www.kitco.com/news/2023-02-07/Gold-price-jump-as-Fed-Chair-Powell-maintains-disinflation-comments-stresses-the-process-will-take-significant-period-of-time.html

3. “Stocks Rally as Fed Chair Powell Is Less Hawkish Than Feared” Barchart, 7 Feb. 2023, https://www.barchart.com/story/news/13990549/stocks-rally-as-fed-chair-powell-is-less-hawkish-than-feared

4. “Don't Fight The Tape” Seeking Alpha, 9 Feb. 2023, https://seekingalpha.com/article/4576736-dont-fight-the-tape

5. “Don't Read His Lips” The Atlantic, 8 Feb. 2023, https://www.theatlantic.com/ideas/archive/2023/02/jerome-powell-federal-reserve-interest-rates/672990/