Jerome Powell says inflation ‘remains too high’ in hawkish speech

Federal Reserve Chair Jerome Powell made one thing certain during his closely-watched speech in Jackson Hole, Wyo., on Friday: Inflation is still too high.

“It is the Fed’s job to bring inflation down to our 2% goal, and we will do so. We have tightened policy significantly over the past year. Although inflation has moved down from its peak — a welcome development — it remains too high,” Powell said.

Powell made clear that the Fed plans to keep its benchmark federal-funds rate to a range between 5.25% and 5.5% — a 22-year high — and said the central bank is “prepared to raise rates further if appropriate.”

Despite his hawkish tone on the still-stubbornly-high inflation, Powell remained vague on whether rates will rise further.

“We cannot identify with any certainty the neutral rate of interest, and thus there is always uncertainty about the precise level of monetary policy restraint,” he said from Jackson Lake Lodge.

“We are navigating by the stars in cloudy skies,” Powell said, noting that Fed officials “will keep at it until the job is done,” he added of reaching the Fed’s 2% inflation goal.

Stocks were little changed after Powell’s remarks, though they opened higher as Wall Street braced for big policy announcements.

After Powell’s speech, the Dow Jones Industrial Average was was up 0.15%, while the S&P gained 0.2% and the Nasdaq increased nearly 0.5%.

Powell’s comments at the annual conference of central bankers comes at a time of uncertainty.

Though Fed officials have said that they’re also no longer forecasting a recession, ratings agency Fitch downgraded the US top-tier sovereign credit from AAA to AA+, citing the possibility that the economy will slip into a mild recession later this year.

Consumers, meanwhile, have continued to feel reprieve from the central bank’s aggressive tightening regime as inflation has eased from its 9.1% peak last June.

In July, core CPI — which excludes volatile food and energy prices — only rising 0.2% from a month ago, matching the 0.2% increase in June.

However, inflation still sits well above 2%, at 3.2%, though it hasn’t stopped businesses from hiring.

“The labor market remains tight,” Powell said on Friday, noting that US employers continue adding jobs though unemployment remains relatively flat month-over-month — “an unusual result that appears to reflect large excess demand for labor,” he added.

Though hiring in July cooled, adding 187,000 jobs last month, the US jobs market is still enjoying a 30-month streak of monthly gains.

Job openings last month marked a slight decrease from the 209,000 jobs added to the US economy in June, and a sharper drop from the robust 339,000 jobs that were gained in May.

Powell noted that “there is evidence that inflation has become more responsive to labor market tightness than what was the case in recent decades.”

Fed officials have warned that strong hiring can often fuel inflation if companies feel compelled to raise pay to attract and keep workers.

Ahead of the Jackson Hole symposium, economists were divided on whether more advances are imminent.

Mark Zandi, the chief economist at Moody’s Analytics, tweeted last week that he sees relief ahead, predicting that inflation is “set to moderate further” as the Federal Reserve approaches its 2% inflation goal.

“The deeper I dig into last week’s inflation statistics, the more confident I am that inflation will be back to the Fed’s inflation target by this time next year. And this without more interest rate hikes, a recession, or even much of an increase in unemployment,” he added.

Another Moody’s Analytics economist, Bernard Yaros, said the firm “believes that the Federal Reserve is done with interest-rate hikes for the current tightening cycle, and the July CPI helps cement our near-term view on monetary policy.”

Meanwhile, Raymond James’ Chief Economist Eugenio Aleman believes stubbornly-high shelter costs “are slated to put pressure on headline inflation going forward.”