Powell says the Fed would need to see a ‘really significant’ rise in inflation before hiking rates
Federal Reserve Chairman Jerome Powell said Wednesday that the central bank would need to see a sustained and significant uptick in price pressures before considering future rate hikes.
“We just touched 2% core inflation to pick one measure. Just touched it for a few months and then we’ve fallen back,” Powell said from Washington. “So I think we would need to see a really significant move up in inflation that’s persistent before we would consider raising rates to address inflation concerns.”
He also detailed the Fed’s decision to cut interest rates for the third time in 2019, saying that officials “see the current stance of monetary policy as likely to remain appropriate.”
Powell stressed that any future move to increase borrowing costs would have to be preceded by a meaningful and consistent uptick in inflation, the rate at which prices rise in the U.S. economy. That could mean a long wait until the next hike, with the Fed’s preferred inflation gauge showing little signs of breaking out anytime soon.
The government’s most recent read on the PCE price index showed a 0.2% increase in July. Excluding the volatile food and energy components, the PCE price index edged up 0.1% last month after rising 0.2% in July. That lifted the annual increase in the so-called core PCE price index to 1.8% in August, the biggest gain since January, from 1.7% in July.
The core PCE index is the Fed’s preferred inflation measure and has consistently undershot the U.S. central bank’s 2% target this year.
The Fed chair’s comment followed the central bank’s decision to cut interest rates by 25 basis points for the third time in 2019. The Fed’s new target for overnight lending is now in a range between 1.5% and 1.75%.