Federal Reserve Chair Jerome Powell said in his opening remarks that the state of the economy has not changed too much over the past month, suggesting that the central bank will continue to be aggressive in fighting inflation.
“From the standpoint of our Congressional mandate to support maximum employment and price stability, the current picture is plain to see: The labor market is extremely tight, and inflation is much too high,” Powell said.
"Another unusually large increase could be appropriate at the next meeting," he said. But it likely will be appropriate to slow the pace as rates become more restrictive, he added.
"It's necessary" to slow economic growth to get inflation back down to 2%, Powell said. He declined to say whether he's expecting a recession. The Fed must bring down inflation to benefit the economy in the longer term, he said. "We're not trying to have a recession, and I don't think we have to."
Still the path to a soft landing has narrowed and may narrow further, he said.
"I do not think the U.S. is currently in a recession." That's because there are too many areas of the economy that are doing too well for there to be a recession, he explained. One of those areas is the exceptionally strong labor market.
"There's some evidence that labor demand has been slowing a bit," Powell said. The economy is starting to see "modestly slower job creation," though it's still robust, he said. Average hourly earnings appear to be moderating. The employment cost index, to be released on Friday, will be an important indicator.
The slowdown in Q2 is "notable," he said. "In all probability, demand is still strong and the economy is still on track to grow this year."
Regarding the Fed's balance sheet reduction plan, Powell said, "We think it's working fine... In September the Fed's balance sheet reduction plan goes to full strength." Getting the balance sheet to equilibrium could take two to two and a half years, he added.
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