Fed Keeping Options Open
Federal Reserve Chair Jay Powell said this week that monetary policy is in "restrictive territory" and putting downward pressure on inflation, but he also made it clear the central bank is keeping its options for more interest rate hikes on the table. "If it becomes appropriate to tighten policy further, we will not hesitate to do so," Powell said in a speech before the International Monetary Fund in Washington. The Fed chair emphasized in his speech that the central bank would take a "meeting by meeting" approach and cautioned on not overreacting to economic data, good or bad. The economy turned in a sizzling performance in the third quarter, growing at an annualized rate of nearly 5%. The unemployment rate stood at 3.9% in October, the highest since 2021, as job growth slowed further last month. "We will continue to move carefully, however, allowing us to address both the risk of being misled by a few good months of data, and the risk of overtightening," Powell added. Central bank officials are wrestling with whether to take further action on rates after leaving them unchanged at their last two policy meetings. The Fed’s benchmark rate is in a range of 5.25%-5.50%, the highest in 22 years. Investors do not expect the Fed to vote for additional hikes, but the majority of the rate-setting committee has penciled in one more rate hike this year, leaving the last meeting in mid-December a possibility. Fed officials have offered varying responses this week to the question of whether rates should go higher, or not. Two hawks, Fed Governor Michelle Bowman and Minneapolis Fed President Neel Kashkari, made it clear they think there is possibly more tightening to come. Richmond Fed President Tom Barkin said he also isn’t yet convinced that inflation is on a "smooth glide path down to 2%," noting that “shelter and services inflation remain higher than historical levels.” With rates restrictive and financial conditions tightened, the Fed has time to make decisions on the data and monetary policy, he said. Some Fed officials, however, offered more of a dovish view about rates this week. Philadelphia Federal Reserve President Patrick Harker said he's in favor of continuing to hold rates steady, noting that strong readings on economic growth won't be enough to move him off this view. Harker underscored that cutting rates won't happen in the short term and that rates will have to remain higher for longer. Powell in his speech emphasized that getting to the Fed's target would still be challenging. "We know that ongoing progress toward our 2% goal is not assured," he said. Fed officials, Powell said, are committed to achieving a stance that is "sufficiently restrictive" to bring inflation down to its goal. "We are not confident that we have achieved such a stance."
