Inflation starting to slow but long, ‘bumpy’ road ahead, says Fed’s Powell

Stronger-than-expected economic data could bring more rate hikes, Mr Powell said. PHOTO: BLOOMBERG

WASHINGTON – Inflation in the United States is starting to cool but the road ahead will likely be long and bumpy, Federal Reserve chairman Jerome Powell warned on Tuesday, adding that stronger-than-expected economic data could bring more rate hikes.

The US central bank has in recent months tempered its aggressive campaign to rein in surging inflation, opting for smaller increases to the benchmark lending rate after multiple steep raises.

Its decisions came as a disinflationary process takes place, mainly in the goods sector, but latest government data showed on Friday that the jobs market remains hotter than policymakers like, adding stress to the inflation fight.

“If the data were to continue to come in stronger than we expect, and we were to conclude that we needed to raise rates more... then we would certainly do that,” said Mr Powell at an event in Washington on Tuesday.

For now, the process of lowering inflation “has a long way to go”, he added. He noted that the services sector has not shown much disinflation yet, apart from the housing services segment.

“This process is likely to take quite a bit of time. It’s not going to be... smooth, it’s probably going to be bumpy,” he said at the event organised by the Economic Club of Washington, DC.

He expects 2023 to be a year of “significant declines in inflation” but that the figure will come down close to the officials’ 2 per cent target only next year.

While the unemployment rate is typically expected to rise as the Fed raises interest rates, joblessness has remained at historically low levels despite the central bank’s eight consecutive rate hikes in the past year.

“The labour market’s extraordinarily strong,” Mr Powell said, adding that it was good that inflation is coming down but not at the cost of a strong jobs market.

But the stronger-than-expected jobs data is also an indication of why this process will take “a significant period of time”.

At the end of a two-day policy meeting last week, Mr Powell told reporters that the Fed needed “substantially more evidence” to be confident that inflation is on a sustained downward path. AFP

Join ST's Telegram channel and get the latest breaking news delivered to you.