Fed Chair to Slow Rate Hikes, but ‘Will Stay the Course’

December 1, 2022 by Kate Michael
Fed Chair to Slow Rate Hikes, but ‘Will Stay the Course’
Federal Reserve Chairman Jerome Powell speaks during a news conference at the Federal Reserve Board building in Washington, July 27, 2022. (AP Photo/Manuel Balce Ceneta)

WASHINGTON — Chairman of the Federal Reserve Jerome Powell gave America news that encouraged a stock market rally Wednesday when he admitted the Fed is willing to slow the rate of interest rate increases.

After he spoke at the Brookings Institution on Wednesday afternoon, the Dow Jones Industrial Average closed up 737 points, or 2.18%. Tech stocks on the Nasdaq Composite fared even better, up 4.41%.

Despite announcing a reduction in the size of rate hikes, he claimed the Fed would keep monetary policy restrictive. 

“History cautions strongly against prematurely loosening policy,” Powell explained as he was questioned by David Wessel, director of Brookings’ Hutchins Center on Fiscal and Monetary Policy. “We will stay the course until the job is done.”


Powell admitted that slowing the pace of rate hikes may be the best way for the Fed to hedge its bets. 

“One risk management technique is to go slower. Another is to hold on longer at a higher level and not loosen policy too early,” Powell said. “[We are in a] very difficult situation in which to forecast inflation. … My colleagues and I do not want to overtighten.” 

He also stressed that “without price stability, the economy does not work anymore.”

While private forecasts have predicted inflation declines over the next year, Powell admitted that the path ahead for inflation remains highly uncertain.

Inflation in early 2021 was related to tightness in the goods market. Now core goods inflation is easing, but inflation continues to rise in housing services and core services other than housing — like health care, education and hospitality. He said labor market dynamics are the key to understanding inflation in the latter category.


A labor supply shortfall opened up during the pandemic, with a current gap of roughly 3.5 people, that is unlikely to close anytime soon for a number of reasons, including slower growth in the working age population. One boon of the tight labor market has been an apparent boost in worker wages, yet for most, any increase in wages is actually being eaten up by inflation. 

“To be clear, strong wage growth is a good thing,” Powell said. “But for wage growth to be sustainable, it needs to be consistent with 2% inflation.

“We think there’s a job for … getting the labor force back in balance,” he said, while he also stressed, “policies to support labor supply are not in the domain of the Fed.”

“I continue to believe that there is a path to a soft or softish landing … where unemployment goes up but [the U.S.] is not in a severe recession,” Powell offered, although he admitted that the path to a soft landing narrowed five or six weeks ago.

Explaining the decision to moderate the pace of rate increases, he reminded that monetary policy affects the economy and inflation with certain lags. 

“Given our progress in tightening policy, the timing of that moderation is far less significant than the questions of how much further we will need to raise rates to control inflation, and the length of time it will be necessary to hold policy at a restrictive level.

“Nobody expected us to raise the rate this much,” he said, “[but] by any standard, inflation remains far too high.” 


Calling ongoing increases “appropriate,” Powell said the Fed would attempt to slow demand growth to give supply time to catch up with demand. “We have more ground to cover.” 

Kate can be reached at [email protected]

A+
a-

In The News

Health

Voting

In The News

January 28, 2023
by Dan McCue
The Rise of the Contract Employee Screams Out for a Rethinking of Policy

WASHINGTON — Hard as it may be to believe, a revolution really did take place while we were all inside,... Read More

WASHINGTON — Hard as it may be to believe, a revolution really did take place while we were all inside, hoping the dark, early shadow of COVID-19 would somehow pass us by.  According to Liz Wilke, principle economist with Gusto, a payroll, benefits and HR platform... Read More

January 27, 2023
by Dan McCue
‘Resilient Communities’ Breakfast Jumpstarts Conversation on the Modern Economy

WASHINGTON — Connie E. Evans, president and CEO of the Association for Enterprise Opportunity, smiled broadly Thursday as she surveyed... Read More

WASHINGTON — Connie E. Evans, president and CEO of the Association for Enterprise Opportunity, smiled broadly Thursday as she surveyed the early morning crowd gathered to hear her and other speakers at Charlie Palmer Steak. “It’s seldom, at least in my experience, that you get a... Read More

January 27, 2023
by Dan McCue
President Confirms Jeff Zients Will Succeed Klain As Chief of Staff

WASHINGTON — President Joe Biden announced Friday morning that Jeff Zients, the administration’s former COVID-19 response coordinator, will assume the... Read More

WASHINGTON — President Joe Biden announced Friday morning that Jeff Zients, the administration’s former COVID-19 response coordinator, will assume the role of White House chief of staff next month. Ron Klain, who currently serves as the president’s chief of staff, is expected to leave the White... Read More

January 26, 2023
by Dan McCue
Spanberger Leads Push to Prevent Offshore Drilling in Virginia

WASHINGTON — As House Republicans move closer to a vote on a bill intended to curb the president’s ability to... Read More

WASHINGTON — As House Republicans move closer to a vote on a bill intended to curb the president’s ability to sell oil from the Strategic Petroleum Reserve, Rep. Abigail Spanberger, D-Va., is pushing for an amendment to prevent her state’s coast from being opened for oil... Read More

January 26, 2023
by Dan McCue
Schiff Enters Field Competing for Feinstein Senate Seat

WASHINGTON — Rep. Adam Schiff, D-Calif., confirmed one of California politics’ most poorly kept secrets, announcing Thursday that he is... Read More

WASHINGTON — Rep. Adam Schiff, D-Calif., confirmed one of California politics’ most poorly kept secrets, announcing Thursday that he is running in 2024 for Democratic Sen. Dianne Feinstein’s Senate seat. Schiff is the second candidate to formally enter what is expected to be a crowded field... Read More

Slotkin Preps Senate Run After Winning Tough Reelection Bid

LANSING, Mich. (AP) — Just three months ago, Rep. Elissa Slotkin was one of the most vulnerable Democrats in Washington,... Read More

LANSING, Mich. (AP) — Just three months ago, Rep. Elissa Slotkin was one of the most vulnerable Democrats in Washington, fighting an expensive campaign for reelection in a Michigan district that Republicans were sure they could retake. That was all a distant memory recently as Slotkin... Read More

News From The Well
scroll top