Mr Powell said the US economy is not cooling as expected, noting stronger-than-anticipated gross domestic product growth and “especially robust” consumer spending. The housing sector, too, is gaining steam again after decelerating over the past 18 months.
“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 towards our objective,” he said at the Jackson Hole symposium in Wyoming.
“Additional evidence of persistently above-trend growth could put further progress on inflation at risk and could warrant further tightening of monetary policy.”
Mr Powell's address at the Jackson Hole symposium was monitored by traders looking for clues on the Fed's next steps in bringing inflation down to 2 per cent.
The Fed has raised interest rates to the range of 5.25 per cent to 5.50 per cent since they were at a near-zero level March 2022. Traders remain split on whether there will be an additional rate increase this year, data from the CME Group shows.
Recent economic data has shown that the core Price Consumer Expenditures Price Index has dropped from a 5.4 per cent peak in February 2022 to 4.3 per cent last month. Recent readings “were welcome”, but suggested it would take more than “two months of good data” to be confident in sustained disinflation towards the Fed's 2 per cent goal.
'Navigating by the stars under cloudy skies'
A central theme of Mr Powell's address was the uncertain economic outlook that the Fed faces.
He stated his belief that its current stance is restrictive enough, but officials cannot be certain how high interest rates must be to slow down the economy.
“And thus, there is always uncertainty about the precise level of monetary policy restraint,” Mr Powell said.
“Based on this assessment, we will proceed carefully as we decide whether to tighten further or, instead, to hold the policy rate constant and await further data.”
The labour market in particular has bedevilled the Fed. While previous tightening cycles have typically caused the unemployment rate to increase, that has not yet happened in this one.
And even though job openings have declined, the unemployment rate is still at a historic low of 3.5 per cent, which Mr Powell characterised as a “highly welcome but historically unusual result that appears to reflect large excess demand for labour”.
“These changing dynamics may or may not persist, and this uncertainty underscores the need for agile policymaking,” he said.
Mr Powell's remarks also mirrored the uncertainty expressed by Fed officials from their most recent meeting who feared raising rates too much could hurt the economy. Doing too little, though, could lead to entrenched inflation.
“As is often the case, we are navigating by the stars under cloudy skies,” he said.