Powell emphasized that if the US economy continues to develop in this manner, it could jeopardize progress on inflation and may require further tightening of monetary policy. However, his speech was briefly disrupted by climate change protesters.
The Federal Reserve had previously slowed down its aggressive campaign of monetary tightening, which had led to its benchmark lending rate reaching a 22-year high. The aim now is to control inflation without pushing the US economy into a recession. Although headline inflation, as measured by the Fed’s preferred gauge, has decreased by more than half since its peak in June last year, it remains above the long-term target of two percent.
“Inflation is still too high, and a few months of good data are only the beginning of what it will take to build confidence that inflation is moving down sustainably toward our goal,” Powell said.
“We cannot yet know how long these lower readings will persist, or where inflation will settle over coming quarters,” he continued, adding that the Fed would proceed “carefully” at future interest rate meetings.
Powell said the Fed’s current policy stance is “restrictive,” suggesting that monetary policy was working to put “downward pressure on economic activity and inflation.”But he warned that “a range of uncertainties, both old and new,” were complicating monetary policy.
“Doing too little could allow above-target inflation to become entrenched,” he said.
“Doing too much could also do unnecessary harm to the economy,” he added.
Recent data points to the continued strength of the US economy supported by resilient consumer spending, while the tight labor market is showing some signs of softening.
The Fed’s upcoming decisions will be “based on the totality of the incoming data, the evolving outlook, and the balance of risks,” he said, echoing previous comments.
Futures traders currently assign a probability of more than 95 percent that the Fed will announce it will hold interest rates steady on November 1, following its next meeting, according to data from CME Group.
In a highly unusual move, Powell also addressed the ongoing conflict between Israel and Hamas militants in Gaza.
“Geopolitical tensions are highly elevated and pose important risks to global economic activity,” he said.
“Speaking for myself, I found the attack on Israel horrifying, as is the prospect for more loss of innocent lives,” he continued.
The Fed’s role is to monitor what economic implications these developments could have, he added.
Analysts have voiced concerns that the Israel-Hamas war could spread into a broader regional conflict in the crude-rich Middle East, with implications for oil production.
Inputs from AFP