"The process of getting inflation down to 2% has a long way to go," Federal Reserve Chair Jerome Powell said during his post-monetary policy meeting press conference.
"It's possible" that the central bank will raise rates again at the September meeting if the data warrant it, he said. "Or we could decide to maintain" the rate.
The Federal Open Market Committee will take a meeting-by-meeting approach in deciding monetary policy, and has not decided on a path of raising at every other meeting. Since the last meeting, economic data has generally come in as the committee expected, he said.
Withdrawal of Russia from the Black Sea grain initiative is a cause of concern, but Powell doesn't expect it to have a big effect on monetary policy.
Next year, the Fed could cut rates while it's still shrinking its balance sheet, Powell said.
"Things have settled down" in the banking sector. "Of course, we're still watching the situation carefully," he said. "The SLOOS (Senior Loan Officer Opinion Survey) has been telling us for more than a year the credit conditions are tightening."
"If we see inflation coming down credibly, sustainably, we don't need to stay restrictive," Powell said. The Fed will stop raising rates well before the U.S. economy reaches 2% inflation.
The Federal Reserve staff outlook expects a noteable slowdown in growth later this year, and is no longer forecasting a recession.
Cutting rates would depend on a wide range of things, Powell said. He wouldn't expect the FOMC to cut rates this year.
"We're not targeting wage inflation," rather the Fed is seeking to cool the labor market. "We're seeing that and it's happening at a gradual pace.. that's a good prescription of getting where we want to get."
"We're start of reaping now the benefits of the reversal of pandemic issues," he said. "Monetary policy will be very important" going forward.
"The real federal funds rate is in meaningfully positive territory," Powell said. "We'll keep monetary policy restrictive until we think it's not appropriate to do so." That sounds like the FOMC is not near considering cutting rates.
"I wouldn't want to automatically go to (hiking at) every other meeting," as there's still uncertainty as to how the economy will develop.
"We want to see easing of supply constraints and normalization of pandemic disruptions," Powell said. Those will help to bring inflation down.
"It's a good thing that headline inflation has come down so much, because that's what the public experiences," Powell said. The main issue is the balance between the risk of doing too much vs. not doing enough. "We're coming to a place where there are risks on both sides."
While the headline inflation has come down, core inflation remains elevated, and the Fed needs to be prepared to raise rates further if that's what's needed, he said.
In deciding whether further tightening is needed, the committee will consider the tightening the FOMC has already implemented. That amounts to 525 basis points of tightening since March 2022.
He pointed out that core PCE inflation, the Fed's preferred gauge, was 4.6% in May, the most recent month for which data are available.
The central bank hiked the federal funds rate target range by 25 basis points earlier, bringing it to 5.25%-5.50%, its highest level in 22 years.