Fed Chair Powell Says More Rate Increases Are In Store

Inflation has started to come down, but it “has a long way to go,” to hit the Fed’s goal of a 2% annual rate, said Federal Reserve Chair Jerome Powell Tuesday.

Powell spoke about Federal Reserve officials' intentions to keep pushing interest rates with billionaire and philanthropist David Rubenstein at The Economic Club of Washington, D.C. Tuesday afternoon.

“We have a significant road ahead to get inflation down to 2%,” Powell said. “I think there has been an expectation that it'll go away quickly and painlessly and I don't think that's at all guaranteed … It will take some time, and we'll have to do more rate increases.”

Powell’s remarks threw further cold water on speculation that recent signs the U.S. economy is slowing down would convince the Fed to back off its campaign of interest rate hikes. The comments were Powell’s first public statements since last week’s jobs report, which showed the unemployment rate falling to a half-century low. The strong data came as a surprise to economists who have been expecting the labor market to show strain under the weight of the hikes. 

Powell said he hadn’t expected the jobs report to be that strong, and that it showed why tamping down on inflation could be “a process that takes a significant period of time.”

A job market tilted in favor of labor—while a welcome scenario for workers—complicates the Fed’s inflation battle. If employees demand higher wages, that could lead companies to raise prices and fuel a so-called “wage-price spiral.” Future reports like last week’s could encourage the Fed to drop the rate hammer harder than markets expect.

“If we continue to get, for example, strong labor market reports or higher and higher inflation reports, it may well be the case that we have to do more and raise hikes more than is priced in,” Powell said. 

The Fed began increasing its benchmark interest rate in March, in an effort to cool the roaring inflation the U.S. saw in 2022. They work by raising borrowing costs, discouraging spending, and slowing down the economy in order to bring supply and demand back into balance. Powell acknowledged that the Fed has indeed made progress in its anti-inflation fight. 

However, while price increases for the goods consumers buy have come down significantly in recent months, price hikes for services (outside of housing) have not, Powell noted. He said he would like to see both types of inflation in full retreat before beginning to back off from rate hikes.