Premature to say Federal Reserve is done raising interest rates, Jerome Powell warns

Fed chief says it is too soon to discuss easing monetary policy even as inflation shows signs of moderating

Federal Reserve Chairman Jerome Powell speaks during a news conference in Washington. Reuters

Federal Reserve Chairman Jerome Powell on Friday said it was too soon to say if the US central bank's key interest rates are at a high enough level to moderate inflation.

Inflation has sharply declined since the Fed began its tightening cycle last year, with rates at a 22-year high and the latest metric showing prices rising 3 per cent on an annual basis.

Fed officials are expected to leave rates unchanged again at the conclusion of their December 12-13 meeting.

Now, with inflation showing signs of moderation, markets are now looking for when the central bank might cut interest rates.

Mr Powell noted that core inflation over the past six months ran at an annual rate of 2.5 per cent, which is not too far from the Fed's long-term 2 per cent goal.

“That progress must continue,” he said during a fireside chat at Spelman College in Atlanta, Georgia.

Recent reports have also suggested that the Fed's interest rates are having an effect as consumer spending appears to be slowing down.

“The strong actions we have taken have moved our policy rate well into restrictive territory, meaning that tight monetary policy is putting downward pressure on economic activity and inflation,” he said.

But it is too soon to declare victory, Mr Powell cautioned.

“It would be premature to conclude with confidence that we have achieved a sufficiently restrictive stance, or to speculate on when policy might ease,” he said.

He added: “We are prepared to tighten policy further if it becomes appropriate to do so” – a phrase the chairman has repeated in recent months.

Projections from the Fed expect one more quarter-point rate increase this year before interest rates fall between 5 per cent and 5.25 per cent by the end of 2024. However, traders believe the Fed is done raising rates and will begin cutting them as soon as March, CME data showed.

Other officials at the Fed also indicated this week that interest rates are at a sufficiently restrictive level, noting the same caveats that Mr Powell mentioned on Friday.