Federal Reserve Chair Powell Deems Inflation Excessive, Signals Readiness for Further Rate Increases

Federal Reserve Chair Jerome Powell delivered a keynote address at the Kansas City Fed’s annual retreat in Jackson Hole, Wyoming, urging increased caution in the battle against inflation and suggesting the potential for further interest rate hikes. Although he acknowledged progress in controlling inflation, Powell emphasized that it remains uncomfortably high for policymakers. He assured a flexible approach to future actions while maintaining a cautious stance on easing. In his speech, Powell echoed his previous year’s remarks at Jackson Hole, where he had warned of forthcoming challenges in reining in inflation. However, the current inflation rate surpasses that of last year. Despite favorable summer data showing a moderation in price increases, Powell remained hesitant to declare victory. Notably, core inflation increased by 0.2% in both June and July.

He recognized the two-sided risks associated with monetary policy decisions—undertaking too little action could lead to sustained above-target inflation, while excessive measures could harm the economy. Powell likened the current situation to navigating under uncertain conditions. The markets reacted with volatility to Powell’s speech, but later in the day, stocks regained strength, and Treasury yields mostly rose. This contrasted with the market response to his Jackson Hole speech in the previous year when stocks plummeted. While Powell’s tone was perceived as hawkish, it was seen as less aggressive than some had feared, especially given recent yield jumps. Market experts noted that Powell struck a balanced approach, avoiding drastic changes in future rate hikes, which was welcomed by investors.