As long as inflation is “too high,” according to the chairman of the US Federal Reserve, interest rates will continue to be raised.

At a yearly gathering of central bankers, Jerome Powell stated that the rate of price increases had slowed since their high.

It is still higher than the Fed’s 2% target, though.

Interest rates could climb further and stay higher for longer, according to Mr. Powell, who made the remarks in a speech to the Jackson Hole symposium in Wyoming.

The key interest rate in the US is 5.25%, the highest level in 22 years, and after 11 straight rate increases since early 2022. Inflation in the US reached 3.2% in the year to July.

“Although inflation has moved down from its peak – a welcome development – it remains too high. 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 toward our objective,” Powell said.

As one of the causes keeping prices high globally, Powell stated that the Fed will “proceed carefully” and cited the effects of Russia’s on-going invasion of Ukraine.

In addition, he noted that despite headline inflation declining from its peak of 9.1% last year, food and energy costs “remain volatile.”

Powell also suggested that rates will rise again soon while the Fed awaited further information.

“Unfortunately, a more resilient than expected economy implies higher rates may or will be needed to cool things enough to reach the 2% inflation goal,” said Cary Leahey, economist at Columbia University.

Before achieving that 2% goal, Powell stated that “substantial further ground to cover” remained.

In addition, he stated that the Fed intended “to hold policy at a restrictive level” – remarks that market analysts had mostly anticipated.

“It’s a reiteration that the Fed at best is going to go very slowly and cautiously,” said Michael Green, chief investment strategist at Simplify Asset Management.

Powell also mentioned the housing market, where things had not quieted down sufficiently.

“After decelerating sharply over the past 18 months, the housing sector is showing signs of picking back up,” he said, adding that “could warrant further tightening of monetary policy”.

Additionally, he stated that before interest rates could start to decline, the Fed needed a softening in the labour market, where salaries were still growing as firms continued to offer greater compensation to recruit workers in an industry that was contracting.

Theoretically, greater earnings contribute to inflation, delaying the need for higher interest rates.

(Adapted from BBC.com)

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