Federal Reserve Chairman Signals Possible Rate Hikes Amid Strong US Economy and Tightening Labor Market

Federal Reserve Chairman Jerome Powell suggested that additional interest rate increases could be justified by the strength of the US economy and the tightening of the labor market. Speaking at the Economic Club in New York, Powell stated that the Fed is closely monitoring data showing resilience in economic growth and labor demand, with growth consistently exceeding expectations. He emphasized the importance of keeping an eye on inflation developments and the labor market’s tightness, noting that a policy shift may be warranted if new evidence emerges suggesting the need for it. Powell also highlighted the need for sustained below-trend growth and some softening of labor market conditions to achieve the Fed’s 2% inflation target.

While the Fed proceeds with caution regarding further rate hikes, at the upcoming Federal Open Market Committee (FOMC) meeting, the target range for Federal Funds (FF) interest rates may remain unchanged at 5.25% to 5.50%. Powell acknowledged that the economy’s key indicators are approaching pre-pandemic levels, indicating a cooling labor market. Additionally, he addressed uncertainties and risks arising from recent events, such as the attack on Israel by Hamas, underscoring the Fed’s role in monitoring economic impacts. He condemned the attacks on Israel as “appalling.”

Regarding financial conditions, Powell highlighted the significant tightening effect resulting from market-driven government bond yield increases. He emphasized that monetary policy could be influenced by continued changes in financial conditions, with market-based interest rate hikes having similar effects as Fed rate hikes. While inflation remains elevated, Powell noted that positive statistics over a few months are just the beginning and building confidence in sustainable inflation reduction to the target requires more time. Powell stressed the challenging road ahead and the Fed’s commitment to bringing inflation sustainably back to 2%.

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Federal Reserve Chairman Jerome Powell said on Wednesday that the strength of the US economy and the tightening of the labor market could justify further rate hikes. Picture taken in September (2023 Reuters/Evelyn Hockstein)

[１９日 ロイター] – Federal Reserve Chairman Jerome Powell said on Wednesday that the strength of the US economy and the tightening of the labor market could justify further rate hikes.

“We are paying close attention to recent data that shows resilience in economic growth and labor demand, with growth sustainably above trend,” said Powell in a speech at the Economic Club in New York Developments on inflation could be in risk and further financial tightening. a policy could be justified if new evidence emerges that this is the case, or that the tightness of the labor market is no longer easing.” he said.

In order to sustainably return the inflation rate to the Fed’s 2% target, it is likely that “the growth rate will need to remain below trend for a period of time, and labor market conditions will need to soften somewhat further.””There is,” he said.

At the same time, the Fed said it was “proceeding cautiously” with a review of the need for further interest rate rises. At the next Federal Open Market Committee (FOMC) meeting to be held from October 31st to November 1st, the Federal Funds (FF) interest rate target may be left unchanged at 5.25% to 5.50%.

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He also said that some key indicators are approaching pre-pandemic levels, providing evidence that the labor market is cooling. He also acknowledged that there are many new “uncertainties and risks” that the Fed must consider as it balances its efforts to fight inflation.

These uncertainties and risks include new geopolitical risks to the economy arising from the “terrible” attack on Israel by the Islamic group Hamas, which effectively controls the Palestinian territory of Gaza. “The Fed has a role to play in monitoring the economic impact of these developments,” he said. He also said that he personally found attacks on Israel “appalling.”

He said the recent market-driven rise in government bond yields was helping to tighten overall financial conditions “significantly.” “Continued changes in financial conditions can affect the course of monetary policy,” he said, suggesting that continued increases in the market-based interest rate would have the same effect as Fed rate hikes.

“Inflation is still too high,” said the chairman, adding that “a few months of positive statistics are just the start needed to build confidence that inflation is falling sustainably towards the target.” “We don’t know how long these low numbers will continue,” he said. “The road ahead is likely to be difficult and take time. We are united in our decision to reduce inflation sustainably to 2%,” he said.

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Our Code of Conduct: Thomson Reuters “Principles of Trust”

Covering the US Federal Reserve, monetary policy and the economy, a graduate student from the University of Maryland and Johns Hopkins University with previous experience as a foreign correspondent, economics reporter and on the local staff of the Washington Post.

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