Federal Reserve Chair Jerome Powell reiterated Thursday that the central bank has not yet met its 2% inflation target and made clear that the central bank’s historic wave of interest rate hikes is not necessarily over.
“If it becomes appropriate to tighten policy further, we will not hesitate to do so,” Powell said during the International Monetary Fund’s policy panel in Washington, DC.
Powell made no arguments in favor of raising rates in the short term. But he said the Federal Reserve will closely monitor the U.S. economy, on the one hand to avoid raising rates excessively and, on the other, being “fooled by a few good months of data.”
“We’ll keep it up until the job is done,” Powell added of the Federal Reserve’s 2% inflation target, which the U.S. economy hasn’t seen since 2012.
The Federal Reserve has raised the benchmark federal funds rates to a 22-year high so far this year, in a range between 5.25% and 5.5%.
As of the last policy meeting in November, the sentiment remains the same: a further 25 basis point increase is possible before the end of the year as inflation remains well above the Federal Reserve’s target.
“We are making decisions on a meeting-by-meeting basis, based on the totality of incoming data and their implications for the outlook for economic activity and inflation, as well as the balance of risks, determining the extent of further policy tightening that may be appropriate for go back. inflation to 2% over time,” Powell said Thursday.
Federal Reserve officials have said they are no longer predicting a recession, although data in recent months has not always painted a clear picture for economists predicting the Fed’s next move.
The Consumer Price Index (a key measure of inflation) rose 3.7% in September, nearly double the Federal Reserve’s target, and the economy by many measures, including an unemployment rate of 3.9 % continues to exceed expectations given the rapid rise in interest rates.
The surprisingly resilient labor market has raised fears that inflation could become more persistent.
Strong hiring can often fuel inflation if companies feel forced to raise wages to attract and retain workers, making it more difficult for the Federal Reserve to meet its 2% inflation goal without raising the benchmark rate. of federal funds beyond its current range: the highest in the American economy. has seen since 2001.
Therefore, the increase of 150,000 jobs in October – a sharp drop from the 336,000 jobs added in September – is a sign that the pace of hiring is losing some momentum without plummeting, which without doubt was well received by the Federal Reserve.
The October CPI – a closely watched measure of inflation that tracks changes in the costs of everyday goods and services – will be released on Tuesday and will be important for central bankers’ upcoming interest rate decisions at the policy meeting. from December.
The Federal Reserve hopes to achieve a rare “soft landing,” in which it would slow hiring and growth enough to cool price increases without pushing the world’s largest economy into a recession.
Optimism that this could happen has been growing since inflation fell from its peak of 9.1% in June 2022, although Powell has remained hawkish on the all-important 2% inflation target.
Billionaire hedge fund magnate Ken Griffin doesn’t seem too convinced that such an inflation rate is possible.
At the Bloomberg New Economy Forum in Singapore on Thursday, the 55-year-old founder of Citadel warned that high inflation rates could persist “for decades” as the Russia-Ukraine and Israel-Hamas wars and government deficits continue. of the United States remains high. .
“We’re likely to see higher real rates and we’re likely to see higher nominal rates,” Griffin reiterated on the Bloomberg forum, in which he said the U.S. government clearly didn’t plan when it “went on the spending spree.” that created a Deficit of 33 billion dollars.”
Griffin, who is worth an estimated $35.5 billion, according to Bloomberg estimates, said America’s fiscal spending needs to be put in order as the country is “spending at the government level like a drunken sailor.”
Last month, the U.S. government posted a budget deficit of $1.695 trillion in fiscal year 2023, a 23% increase from a year earlier, as revenues fell and outlays for Social Security, Medicare and Record interest costs on federal debt rose.
The Treasury Department said the deficit was the largest since a $2.78 trillion COVID-driven gap in 2021, although President Joe Biden is still asking Congress for $100 billion in new foreign aid and spending. security, including $60 billion for Ukraine and $14 billion for Israel. along with funding for US border security and the Indo-Pacific region.
The figure is unsustainable, according to Griffin, and marks a significant return to widening deficits after consecutive declines during President Biden’s first two years in office.
The 2023 fiscal deficit would have been $321 billion larger, but was reduced by this amount because the Supreme Court struck down Biden’s student loan forgiveness program as unconstitutional. The ruling forced the Treasury to reverse a preemptive charge against fiscal 2022 budget results that increased that year’s deficit.
The fiscal year 2022 deficit was $1.375 trillion.
