The U.S. economy will likely need a "restrictive" rate for some time, Federal Reserve Chairman Jerome Powell said Wednesday in the press conference after the central bank raised its key rate by 75 basis points for a fourth straight time.
The Fed will take a meeting-by-meeting approach to determining its rate increases.
Moderating the pace of increases may come at the next meeting or the one after that, Powell said.
"I don't get any sense that we've overtightened or moved too fast," he also said. "We have more ground to cover."
"The important question now is how far to go," he said. "We may ultimately move to higher levels" than were considered in September.
Longer-term inflation expectations appear to have moved back down, but there's been no clear way identified to show when high inflation expectations are entrenched, he added.
"It's very premature to think about pausing the rate hikes," Powell sald.
"Labor market is very, very strong; households have strong balance sheets. It will take some time for inflation to come down, we think."
"The housing market was very overheated for a couple of years," he said, and that market needs to get back into a balance of supply and demand. The decline in housing this time around doesn't have the financial stability risks of the 2008 financial crisis, he said. The Fed isn't seeing poor underwriting like it did in 2008.
Anytime one of the Fed's policymakers violates the rules or falls short, it risks losing public trust, he said. The central bank takes that very seriously. He has no update on the investigation into Atlanta Fed President Raphael Bostic as the Office of the Inspector General is responsible for the investigation.
The Fed's message is: "We think we have a ways to go, ground to cover" with interest rate increases before inflation comes down. "Pausing is not a conversation that we're having."
"It appears that consumer spending is still positive, it's not shrinking," Powell said, sayin it appears households have increased their savings during the pandemic. "Consumers are still buying. I don't know how big the fiscal headwinds are."
The path to a soft landing "has narrowed" but it's still possible, he said.
"Inflation picture has become more and more challenging over the year, without question," Powell said in concluding the press conference.、
He does note that the Fed's series of rate hikes, up 300 bps before today's action, has started to impact the economy. Consumer spending has slowed significantly, he said.
"We still have some ways to go," he said for the Fed to reach its goal of bringing inflation down to 2%.
Ian Shepherdson, Pantheon Macroeconomics' chief economist sees today's Fed statement as clear signal that the central bank will soon shift to smaller rate hikes. "This strikes us as a clear signal that wave of 75bp hikes is over, unless the data between now and the December meeting - including two rounds of inflation and labor market reports - are unexpectedly awful."
The CME FedWatchtoolnow gives a larger probability to a 50-bp hike (53.6%) in December than a 75-bp increase (41.7%). Earlier today, the probabilities for the two were at about the same level.