In a speech made at an Economics Club of Washington event, over the weekend, Federal Reserve Chairman Jerome Powell warned that inflation is too high, indicating that the central bank is prepared to raise interest rates in order to address it.
“We remain prepared to adjust policy should inflationary pressures persist,” Powell said. He went on to explain that the Fed views “inflation expectations as a key factor in our decision-making” and that rapid increases in prices can erode economic confidence.
The central bank unexpectedly raised rates four times in 2018, and the market is now expecting two more rate hikes in 2019. Chairman Powell’s comments may have been in response to reports that inflation is higher than expected. According to recent statistics, consumer prices in the U.S. have risen an average of 2.3 percent over the past 12 months – the highest annual rate since 2012.
Chairman Powell also indicated that the Fed is “committed to achieving average inflation of symmetrically around 2 percent.” This recommitment to a target of 2 percent inflation gives investors confidence that the Fed will act appropriately to maintain the sustainability of the U.S. economy.
The Chairman’s speech has left economists and investors alike uncertain about the Fed’s future course of action. This leaves open the possibility of additional increases in interest rates in order to keep inflation under control. Investors are also wondering if the Fed will reduce interest rates if inflation remains below the 2 percent target or if they will remain on hold.
In any case, Chairman Powell’s speech has made it clear that the Fed is prepared to make policy adjustments if needed in order to ensure low, stable and sustainable inflation and economic growth.
