US Fed could hike rates again if 'appropriate': Powell

Federal Reserve Chair Jerome Powell said it may yet be "appropriate" to tighten monetary policy further (Jim WATSON)
Federal Reserve Chair Jerome Powell said it may yet be "appropriate" to tighten monetary policy further (Jim WATSON)

The US Federal Reserve is prepared, if needed, to hike interest rates further in order to bring inflation down to its long-term two percent target, Fed Chair Jerome Powell said Thursday.

"We know that ongoing progress toward our two percent goal is not assured: Inflation has given us a few head fakes," Powell told a conference in Washington.

"If it becomes appropriate to tighten policy further, we will not hesitate to do so," he added, in remarks that were briefly disrupted by climate protesters.

Powell's comments come just over a week after the US central bank voted to hold interest rates steady at a 22-year high for a second consecutive meeting, fueling expectations that it was done with rate hikes.

While the Fed's rate-setting committee is "committed" to achieving a sufficiently tight stance of monetary policy, "we are not confident that we have achieved such a stance," Powell said.

The Fed chair's comments suggest the US central bank is still concerned about the prospect of a re-acceleration of inflation, which has more than halved since peaking last year, according to the Fed's favored yardstick.

However, Powell later indicated that he felt the Fed was "probably"  at a point where its monetary policy was "significantly restrictive," suggesting that the Fed felt confident in its current stance.

"We're watching the effect carefully on the economy," he said.

Despite the Fed's aggressive monetary tightening, which brought rates to a level between 5.25-5.50 percent, economic growth remains strong and the labor market remains fairly buoyant -- although it has shown some recent signs of slowing.

The strong recent economic data has increased the likelihood of a so-called "soft landing," whereby the Fed succeeds in tackling inflation without plunging the United States into recession.

- Uncertainty over December hike -

Most Fed policymakers indicated back in September that they expect one more interest rate hike before the year is out, although many of them have since indicated they think the Fed could be done tightening monetary policy.

"While I see us on the path of taming inflation and protecting our economic underpinnings, I would also caution that a decrease in the policy rate is not something that is likely to happen in the short term," Philadelphia Fed President Patrick Harker said earlier this week.

But not all voting members of the rate-setting Federal Open Market Committee have expressed this view.

Fed Governor Michelle Bowman recently told a conference in Ohio that she continued to expect the Fed will need to raise rates further "to bring inflation down to our two percent target in a timely way."

"I see a continued risk that core services inflation remains stubbornly persistent," she added, referring to a measure of inflation that strips out volatile components like food and energy.

At Thursday's conference at the International Monetary Fund, Powell indicated the Fed would proceed cautiously, "allowing us to address both the risk of being misled by a few good months of data, and the risk of overtightening."

Futures traders currently assign a probability of more than 88 percent that the Fed will vote to hold interest rates steady at its next rate meeting in December, according to data from CME Group.

In a possible nod to climate protesters -- who have now disrupted his speeches twice in the past month -- Powell said it should be up to elected politicians, and not the independent US central bank, to set policy.

"The temptation to wander into exciting new issues that really are the business of the elected government is a strong one, and is to be resisted," he said.

The Fed has taken some limited steps on the issue of climate change, recently issuing new guidelines for banks around reporting climate risks.

Powell has previously said the Fed should not play the role of "climate policymaker," adding that such decisions "must be made by the elected branches of government."