Fed Chairman Powell says it is too early to predict when rates will fall

Federal Reserve Chairman Jerome H. Powell suggested Friday that the central bank might be done raising rates if inflation and the economy continue to cool as expected. He said central bankers could raise interest rates further if necessary.

“It would be premature to conclude with confidence that we have reached a sufficiently restrictive position, or to speculate about when policy might ease,” Mr. Powell said. in remarks at Spelman College. “We are prepared to further tighten the policy when it becomes appropriate to do so.”

Mr. Powell’s comments are likely to reinforce already widespread expectations that the Fed will leave rates unchanged at its meeting December 12 and 13. The Fed has already raised interest rates to a range between 5.25 and 5.5 percent, a sharp increase from near zero in March 2022. These higher borrowing costs are weighing on demand for mortgages, auto loans and corporate debt, pushing the economy into a crisis arises. attempt to reduce inflation.

Given the current high interest rates, the Federal Open Market Committee has suspended its interest rate increases for several months. Investors have increasingly come to expect that the next step would be to cut rates — though Fed officials have been reluctant to declare victory, or confidently predict when exactly borrowing costs might fall.

“Having come so far and so fast, the FOMC is moving forward cautiously as the risks of too little and too much tightening become increasingly balanced,” Mr. Powell said.

The Fed will release new economic projections after its December meeting. This will show where policymakers expect interest rates to be at the end of 2024. That will give investors a sense of how much officials expect to cut rates next year, but little insight into when the cuts might start.

Policymakers want to avoid setting interest rates at levels that crush the economy, risking much higher unemployment and a recession. But they also want to make sure they can completely eradicate rapid inflation, because if price increases run too high for too long, they can become entrenched in the way consumers and businesses behave. That would make it even more difficult to get rid of rapid inflation in the longer term.

After months of heady progress, the Fed recently received a wave of data indicating that it is making meaningful progress toward achieving its goals.

Inflation is noticeably moderating, and the slowdown is occurring across a range of products and services. The labor market has cooled compared to last year, although companies are still hiring. Consumer spending is showing some signs of slowing, although it hasn’t fallen off a cliff.

All these signals together give central bankers more confidence that interest rates can be high enough to bring inflation back to the 2 percent target within a few years. In fact, the data reinforces optimism that officials might be able to pull off a historically rare “soft landing”: cooling inflation gently and without causing serious economic pain.

Still, inflation has cooled before rebounding, and the continued strength of consumer spending has surprised many economists. That’s why officials don’t want to celebrate it prematurely.

“As the supply and demand effects of the pandemic continue to wane, uncertainty about the outlook for the economy is unusually high,” Powell said Friday.

The Fed, he said, “is committed to bringing inflation down to 2 percent over time, and to keeping policy restrictive until we are confident that inflation is moving toward that goal.”