Jerome Powell: Further Rate Increases Needed to Reach Inflation Goal

Federal Reserve Chair Jerome Powell said Tuesday that more rate increases will be needed to cool inflation and keep the US economy on track. During a Q&A session with David Rubenstein at The Economic Club of Washington, Powell said that the central bank has a job to do and will “have to do further rate increases” to get to its 2% inflation goal.

Powell commented on the January jobs report, noting that they did not anticipate such a robust result – the US economy had added 517,000 jobs.^[0] This illustrates why we believe that this will be a lengthy process.

Powell added that the process of getting inflation down is “really at an early stage” and cautioned that higher inflation reports could mean more rate hikes than are currently priced into the market.^[1]

“We anticipate that ongoing rate increases will be appropriate,” Powell said.^[2] “We expect significant progress with inflation this year. It is our job to produce it. But the reality is we depend on the data. If we keep getting higher inflation reports, it may well be the case we might have to raise more.”^[0]

The central bank increased its benchmark interest rate a quarter percentage point to a target range of 4.5%-4.75% at its most recent meeting, which concluded six days ago.^[3]

Fed watchers are now speculating that more hikes could be needed, or that rates will have to stay higher for longer, if the labor market appears to be working against the Fed’s inflation fight.^[4]

Investors are eager to hear more from Powell today at the Economic Club of Washington, as the markets hope for any indications of the future interest rate trajectory after last Friday’s strong payroll report for January.^[5]

The January jobs report far surpassed expectations, adding 517,000 jobs and renewing concerns about weakness in the ad market.^[6] Minneapolis Fed President Neel Kashkari said that the strong jobs report shows that the Fed needs to keep raising interest rates and that “right now he's still around 5.4%”.^[7]

Ahead of Powell’s speech, U.S. stock index futures are on edge as the markets are watching to see if Powell issues fresh hawkish statements, such as saying that the peak in interest rates may be higher than policymakers had previously expected.^[7]

0. “Fed Chair Powell: Inflation fight will take ‘a significant period of time'” CNN, 7 Feb. 2023, https://www.cnn.com/2023/02/07/economy/jerome-powell-economic-club-speech/index.html

1. “Bitcoin trades around $23,000 after Fed Chair Powell warns that rates could rise further” CNBC, 7 Feb. 2023, https://www.cnbc.com/2023/02/07/bitcoin-trades-around-23000-after-fed-chair-powell-warns-that-rates-could-rise-further.html

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. “Fed Chair Powell says inflation is starting to ease, but interest rates still likely to rise” CNBC, 7 Feb. 2023, https://www.cnbc.com/2023/02/07/fed-chief-powell-says-the-the-disinflationary-process-has-begun-but-has-a-long-way-to-go.html

4. “Fed's Powell speaks on economy, job market” The Washington Post, 7 Feb. 2023, https://www.washingtonpost.com/business/2023/02/07/powell-economy-jobs/

5. “Stock Market News Today: Indices Turn Volatile after Powell Speech” TipRanks, 7 Feb. 2023, https://www.tipranks.com/news/stock-market-news-today-futures-up-ahead-of-powell-speech

6. “Americans will see ‘significant decline in inflation' in 2023: Powell” Business Insider, 7 Feb. 2023, https://www.businessinsider.com/when-will-inflation-go-down-significant-decline-this-year-powell-2023-2

7. “Markets Today: Stocks Slightly Higher Ahead of Fed Chair Powell's Speech” Barchart, 7 Feb. 2023, https://www.barchart.com/story/news/13975845/markets-today-stocks-slightly-higher-ahead-of-fed-chair-powells-speech