Powell: Fed will keep rates high until inflation declines sustainably

The president of the United States Federal Reserve (Fed), Jerome Powellstated this Wednesday that interest rates will remain high as long as necessary, until inflation is reduced to its target of 2% and remains sustainably low.

The Fed will maintain “a monetary policy stance that is sufficiently restrictive to reduce inflation sustainably to 2% over time” and rates will remain high “until we are confident that inflation is on track toward that goal,” he said. Powell.

This was stated in a press conference after the Fed announced a new pause in interest rate increases, after the eleven consecutive increases it has made since March of last year. Rates thus remain at the current range of 5.25% and 5.5%, their highest level since 2001.

Powell Therefore, he did not rule out that in December, when the last meeting of the year of the Federal Open Market Committee (FOMC)there is a new increase, although he assured that no decision on the matter has been made at this meeting.

“We have not made the decision yet,” he stressed and “we are not even talking today about making a decision in December.”

To the question of whether they have already begun to consider a horizon in which rates can fall, Powell He stated that the committee is “absolutely” thinking “about rate cuts.”

“We are not talking about rate cuts. We are still very focused on the first question, which is: have we achieved a monetary policy stance that is restrictive enough to generate inflation over time and in a sustainable way? That is the question,” he stated.

How long high rates will remain will be a question to ask in the future. “The question of rate cuts simply does not arise because I think the first question is very important,” insisted Powell, who acknowledged that the process to sustainably reduce inflation to 2% “has a long way to go.”

As after every meeting, the Fed said in a statement that the FOMC will continue to evaluate the economic data that is known in the coming weeks and the effects that monetary policy is having on them.

Recent economic indicators, the Fed notes, suggest “that economic activity expanded at a strong pace in the third quarter,” while “employment growth has moderated since the beginning of the year, but remains strong” and “ “Inflation remains high.”

“Tighter financial and credit conditions for households and businesses are likely to impact economic activity, hiring and inflation,” the Fed said.

Until June of this year, in all their meetings since the streak of increases began, the members of the FOMCthe body in charge of deciding whether or not to raise rates, decided to raise them.

After the pause in June, they increased them again in July and in September they again chose to pause the increases.

This pause occurs in a complex context for the inflation. After a streak of more than a year of declines from the peak of 9.1% reached in June 2022, prices registered a rise of five tenths in August, to 3.7%, the second consecutive increase, and remained in the same figure in September.

(With information from EFE)