Has Powell’s Speech Confirm Or Dismiss Hawkishness?

Interest rate futures tied to the Federal Reserve’s policy rate on Friday priced in a more than even chance of tightening at either the November or December policy meetings after Chair Jerome Powell struck what market participants perceived to be a moderately hawkish tone.

The Fed though is widely expected to hold rates steady at a range of 5.25% to 5.50% at the Sept. 19-20 meeting.

Fed Chair Jerome Powell said on Friday Fed policymakers would “proceed carefully as we decide whether to tighten further,” but also made clear that the central bank has not yet concluded that its benchmark interest rate is high enough to be sure that inflation returns to the 2% target.

Powell said that inflation is still too high, and he warned that restoring price stability will likely require an extended period of elevated interest rates. Speaking to a gathering of economists and central bankers in Jackson Hole, Wyo., Powell said it’s encouraging that inflation has cooled — from 9.1% last summer to 3.2% last month.

But Powell stressed some of the improvement could be temporary, and he reiterated the Fed is committed to getting inflation all the way down to their 2% target.

“The process still has a long way to go,” Powell said. “We are prepared to raise [interest] rates further if appropriate, and intend to hold policy at a restrictive level until we are confident that inflation is moving sustainably down toward our objective.”

The central bank has already raised its benchmark interest rate from near zero in early 2022 to just over 5.25% today, in the most aggressive series of rate hikes since the early 1980s.