Jerome Powell has started his press conference by reaffirming the central bank’s stance in the fight against inflation.
"We have more work to do" to bring down inflation after the central bank raised its rate by 25 basis points to 4.50%-4.75% Federal Reserve Chair Jerome Powell said in his post-monetary policy decision press conference.
The S&P 500 gained on Wednesday in an intraday turnaround as investors shook off a quarter-point rate hike from the Federal Reserve and focused on comments from Fed Chairman Jerome Powell that hinted at falling inflation.
The S&P 500 gained 1.09% after falling nearly 1% earlier. The Nasdaq Composite added 1.97%.
Powell was repeating comments from previous appearances. He said the Fed remained “strongly committed” to bringing down inflation, repeated the statement language about ongoing rate increases, and stressed the problems that inflation can cause for consumers and the labor market.
“Without price stability, the economy does not work for anyone,” Powell said.
That's emphasizing to financial markets that the central bank isn't planning on backing down from its policy tightening yet.
Labor market is still extremely tight, with job gains being robust. "Although the pace of jobs growth has slowed", the labor market is still "out of balance," he said.
"I don't see cutting rates this year." Powell said he's "not particularly concerned about the divergence" between the Fed's guidance and financial markets that are only expecting one more rate hike before a pause.
"Certainty is just not appropriate here... we're going to be cautious about declaring victory... we're in the early stages of disinflation."
He expects positive growth for this year, but at a subdued pace, pointing out that the global economic picture has improved.
There's still a path to a "soft landing." "My base case is that the economy can return to 2% inflation without a substantial downturn," he said.
He doesn't expect that core services, ex-housing, inflation will come down significantly without a better balance in the labor market.
When asked about the Federal debt ceiling, Powell said the only way forward is for Congress to raise the debt level. "Don't assume" the Fed can protect the economy from a debt default, he added.
"We've raised the rate by 450 basis points" and we're talking about a couple more rate hikes before a pause, Powell said.
"It would be very premature to declare victory," he said. "The disinflation process has started, especially in goods."
The policymakers have "no desire" to over-tighten. And they can adjust policy if they find that they did over-tighten.
There's "still work to do" in tightening financial conditions. If data warrants, the FOMC would be willing to move rates higher than its previous projections. At the December meeting, the median projection was for ~5.1% federal funds rate.
Disinflation still hasn't affected core services costs, excluding housing, he said.
"It's gratifying to see the disinflationary process now underway," Powell said. So far, he's seeing progress in bringing down inflation without weakening of labor conditions.
Total PCE prices have risen 5.0% in the past 12 months, and core PCE prices have increased 4.4% in the same period, both well above the Fed's 2.0% inflation goal.
He said now is not the time for complacency. "Although inflation has moderated recently, it still remains too high."
The higher rates mean the economy is likely to result in economic growth below the long-run growth trend and softening of labor market.
"We will stay the course until the job is done," Powell said.
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