Powell's conversation at the Cato Institute's annual monetary conference today is his last scheduled public appearance before the Fed's next policy meeting.
Ting Shen/BloombergA flurry of public appearances from top Federal Reserve officials this week is making two things clear: Expect a sizable interest-rate increase at the central bank’s next policy meeting later this month. And don’t expect a policy reversal anytime soon after that.
Fed Chairman Jerome Powell on Thursday sought to emphasize the bank’s commitment to tackling rising prices and staying aggressive until inflation falls back to the Fed’s 2% target. He warned that trying and failing to return the economy to price stability—which happened, as he mentioned, during the high inflation era of the 1970s—only heightens the “ultimate cost to society” of getting costs under control.
And he noted that the Fed is now focused on acting “forthrightly” against inflation to ensure that consumers don’t come to view rapidly rising prices as the norm.
“History cautions strongly against prematurely loosening policy,” Powell said during a moderated discussion at the Cato Institute, a libertarian thinktank in Washington. “I can assure you that my colleagues and I are strongly committed to this project and we will keep at it until the job is done.”
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Powell’s remarks come just two weeks before the central bank’s next policy meeting, during which officials are widely expected to raise interest rates by three-quarters of a point for the third time this year. Investors were pricing in an 84% chance of a 75 basis point rise as of Thursday morning, after Powell had finished speaking, according to CME data .
The European Central Bank also raised interest rates by 0.75 point on Thursday as it tries to keep pace with the Federal Reserve.
Powell’s comments come amid a broader push by the U.S. central bank to hammer home the message that the Fed is committed to keeping monetary policy tight until the economy returns to price stability, even if it brings economic pain in the meantime. It’s an argument Powell laid out clearly in Jackson Hole in late August in a forceful speech that knocked down the idea that the Fed would soon be looking at pausing or reversing its rate-hike path.
And it’s one both he and Fed Vice Chair Lael Brainard reaffirmed in public appearances this week. Brainard said in a speech on Wednesday that “monetary policy will need to be restrictive for some time to provide confidence that inflation is moving down to target.” And she vowed that the Fed is “in this for as long as it takes to get inflation down.”
Neither Powell nor Brainard appeared to try to tamp down expectations of another aggressive round of tightening, which some analysts and Fed watchers are interpreting as a green light for a third consecutive three-quarter point hike. Powell’s comments Thursday were his last scheduled public remarks before the Sept. 20-21 meeting.
It’s far too early to predict with any certainty where the Fed will go after September in its remaining two policy meetings this year, which will fall in early November and mid-December. But futures markets on Thursday were predicting the Fed would ease off its aggressive path slightly with a half-point rate increase in November. Bank of America updated its guidance after Powell’s remarks to call for a 75 basis point hike in September, 50 basis points in November, and 25 basis points each in December and January, to bring the target range to between 4% and 4.25% by early next year. Goldman Sachs also boosted its forecast late Wednesday to reflect a 75 basis point hike this month and a 50 basis point rise in November.
For now, though, the Fed has been telegraphing that while its path forward is data-dependent, it’s likely to keep monetary policy tight for months to come. And while August inflation data released next week will be a key factor influencing September’s meeting—especially after the consumer-price index stayed flat in July —Fed officials have also emphasized they want to see several months of moderating inflation before they will feel confident that price gains are slowing.
Powell in particular remains focused on consumers’ inflation expectations, warning that rising expectations have “the capacity to really raise the costs of getting inflation down.” He pointed to that as a core reason why the Fed must remain aggressive now.
“The clock is ticking,” he said. “The longer that inflation remains well above target, the greater the concern that the public will start to just naturally incorporate higher inflation into its economic decision making. And our job is to make sure that doesn’t happen.”
Write to Megan Cassella at megan.cassella@dowjones.com
