Federal Reserve’s Jay Powell says ‘premature’ to rule out further rate rises

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Jay Powell has sought to push back on speculation that the Federal Reserve had won its fight against inflation, indicating it was too soon to rule out further interest rate rises or to start discussing cuts.

“It would be premature to conclude with confidence that we have achieved a sufficiently restrictive stance, or to speculate on when policy might ease,” the chair of the US central bank said on Friday, just before the start of a quiet period preceding its final monetary policy meeting of the year.

In roughly two weeks’ time, the Federal Open Market Committee is preparing to again keep its benchmark policy rate steady at a 22-year high of 5.25 to 5.5 per cent, a level it has maintained since July. The Fed began a historic drive to raise interest rates in March 2022 in an effort to stamp out surging inflation.

But even as the Fed continues to pause its rate-rising campaign, the high degree of uncertainty about the US inflation outlook and concerns about easing conditions in financial markets left officials wary. They have refrained from signalling more definitively that it has reached a peak in interest rates and discussing criteria for lowering borrowing costs.

Powell on Friday affirmed this message, warning at an event at Spelman College in Georgia that the US central bank was “prepared to tighten policy further if it becomes appropriate to do so”.

Traders in federal funds futures markets have long wagered that the Fed had raised interest rates for the final time five months ago, and they now expect the first of a series of cuts will begin in May. Those bets have become more confident as the incoming economic data has suggested that inflation appears to be on a sustainable downward trajectory.

For cuts to be considered, the Fed needs to see several inflation reports that corroborate this trend — something Powell emphasised on Friday.

“While the lower inflation readings of the past few months are welcome, that progress must continue if we are to reach our 2 per cent objective,” he said, referring to the Fed’s longstanding target for the annual inflation rate.