(NewsNation) — Federal Reserve Chair Jerome Powell signaled the Fed would continue to raise interest rates and tighten monetary policy in an effort to reach the goal of 2 percent inflation.
“It is the Fed’s job to bring inflation down to our two percent goal and we will do so,” Powell said. “Although inflation has moved down from its peak it remains too high.”
At last year’s Jackson Hole, Wyoming conference, Powell issued a warning that interest rates would continue to be raised to combat inflation, which at the time had recently gone past 9%.
This year, the economic picture looks different.
The Fed chair’s speech — at an annual conference of central bankers — comes at a time of heightened uncertainty about the economy and interest-rate policies. Businesses are still hiring, and consumer spending has remained resilient even while inflation has eased from a peak of 9.1% in June 2022 to 3.2%.
At the same time, “core” inflation, which excludes volatile food and energy prices, has remained elevated at 4.7% despite the Fed’s streak of 11 rate hikes beginning in March 2022. And by raising its key rate from near zero to a 22-year high of 5.4%, the Fed has made borrowing much more expensive for consumers and businesses. Soaring mortgage rates, for example, have contributed to a 22% drop in home sales through the first seven months of 2023 compared with the same period last year, causing a potential headwind for the economy.
Powell cautioned that two months of good data regarding core inflation is just the beginning of what it will take to sustainably lower inflation to the agency’s goal.
With regard to specific sectors of the economy, Powell noted that on a 12-month basis, core goods inflation has remained above pre-pandemic levels. He also noted there are indications that market rent growth is settling, but that due to the slow turnover of leases, it will take time for that data to show in inflation measures.
While nominal wage growth has continued to slow, Powell emphasized that real wage growth, a measure that more directly impacts average Americans, has continued to increase as inflation has fallen.
Powell suggested restrictive monetary policies will continue to be necessary to help restore a balance of supply and demand, while the agency must strike a balance between doing too much or too little and remain agile in order to achieve price stability while maintaining strong labor market conditions that benefit everyone.
The Associated Press contributed to this report.