“We’ve seen less progress on inflation than expected,” Powell said at a press conference after the meeting. “I cannot tell you with confidence that we will not raise the maximum estimate. [interest] Rate again.
The news comes at a time when inflation, which has gripped the US since the economy began to recover from the pandemic, has been slowing. The government said this week that inflation slowed again in November, but the central bank is showing no signs of ending its nearly year-long campaign to raise borrowing costs to boost economic growth and reduce spending — even as it points to a recession. .
Members of the Fed’s rate-setting committee said they expected the so-called personal consumption expenditure index — a closely watched measure of inflation — to rise 5.6 percent this year, still more than triple the 2 percent target. But now they expect 2023 to close in with PCE still a touch over 3 percent. Compared to the previous quarter, they estimated inflation at the end of next year to be 2.8 percent.
Although the central bank isn’t clearly projecting a recession — policymakers see near-zero growth this year and next — the slowdown is strongly reflected in the rest of their projections. In particular, the authorities see that the unemployment rate will rise to 4.6 percent next year.
Powell said he was particularly concerned about the strong pressure on wages from an incredibly strong labor market, which he said would keep inflation from falling to 2 percent.
US workers added a robust 263,000 jobs in November, again beating analysts’ estimates, while the unemployment rate remained at a low 3.7 percent. This will help boost economic growth despite the central bank’s efforts to slow things down.
“We believe that you should see a better balance of supply and demand in the labor market,” said the head of the federation.
“It’s not that we don’t want a raise,” said Powell, who has been criticized by Sen. Elizabeth Warren and other progressives for punishing workers with restrictive monetary policy. But inflation is creeping into wages, causing them to rise “more than is consistent with 2 percent inflation.”
Many investors are also getting hurt. Stocks fell after the meeting as the Fed said more rate hikes are coming next year. Powell cautioned markets that the Fed is still trying to keep stocks and bonds on their downward trajectory this year, even as investors look for opportunities to rally, as a decline in securities prompts people to withdraw more money.
“Financial conditions will change in the short term in response to many factors, but it is important to reflect the policy limits we set to return inflation to 2 percent over time,” he said.
Officials see inflation falling to 2.5 percent by 2024, at which point the central bank will begin to rein in the economy by cutting rates by a percentage point, Fed officials said. Best guess. Further price cuts could be set for 2025.
Powell also said the question now is how much the Fed should raise to keep inflation on track. After that, policymakers consider how long to keep them in there.
“I would say the most important question is no longer speed,” he said, adding that the central bank continues to raise borrowing costs.
President Joe Biden has expressed hope that the economy will avoid a recession next year. Biden praised the latest consumer price index report released this week, saying it was “the fifth straight month of annual inflation in the United States.”
“Make no mistake – prices are still very high,” he said. But things are moving in the right direction and improving.
Ben White contributed to this report.
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