Fed to move 'carefully' on rates, 'soft landing' taking shape: Powell

Noting that a key measure of inflation averaged 2.5% for the six months ending in October, close to the Fed's 2% target, Powell said it was clear that U.S. monetary policy was slowing the economy as expected with a benchmark interest rate that is “well into restrictive territory.”

“We're getting what we wanted to get” from the economy, Powell said at an event at Spelman College in Atlanta, noting that the “full effects” of the Fed's 5.25 percentage point rate hikes so far are unlikely to be seen yet be palpable. .

“Having come this far so quickly, the Federal Open Market Committee is moving forward cautiously as the risks of under- and over-tightening become more balanced,” he said, referring to the central bank's policy-setting committee.

As the Fed moves forward, “the data will tell us whether we need to do more” rate hikes, Powell said as he answered questions for Spelman College President Helene Gayle after his commencement address at the historically black college.

Powell, like his colleagues in recent weeks, reiterated that it is too early to call the Fed's inflation battle over, with prices rising 3.0% annually according to the benchmark the central bank uses to achieve its targets. determine. Prices rose 3.5% from October when excluding food and energy costs, a measure the Fed says is a better guide to inflation trends.

“We are prepared to further tighten the policy if necessary,” he said.

But his comments also reflected increased confidence that the current policy rate of 5.25%-5.50% could be enough to get the job done. The Fed meets on December 12 and 13 and is expected to leave its benchmark interest rate unchanged for the third meeting in a row.

“(Powell) used the word 'balanced,' and the message he's sending is that the Fed won't change its rhetoric, but things will go their way and they won't raise rates again.” said Peter Cardillo, chief market economist at Spartan Capital Securities. “They're done, they're done, and that's what the market thinks.” U.S. stocks reversed earlier losses and traded higher after Powell's comments, and two-year Treasury yields fell to their lowest level since June 13. Interest rate futures traders joined bets that the Fed would leave rates steady at its December and January policy meetings. , and then start cutting rates at the March meeting.

Powell and Fed Governor Lisa Cook, who earned her bachelor's degree from Spelman College, were scheduled to participate in a roundtable discussion with local entrepreneurs later Friday.

'SOFT LANDING'

The Fed chief said policymakers still view uncertainty in the economic outlook as “unusually high,” a factor in their insistence that rates may still need to rise.

But he also said the broad outlines of the hoped-for “soft landing” appeared to be falling into place, with the labor market still strong even as spending and output growth slow and price pressures ease.

“My colleagues and I expect spending and output growth to slow over the coming year as the effects of the pandemic and reopening fade and restrictive monetary policy weighs on aggregate demand,” Powell said.

'The pace at which the economy is creating new jobs remains strong and is slowing to a more sustainable level.

“Wage growth remains high but is gradually moving towards levels that would be more consistent with 2% price inflation over time, and real wages are rising again as inflation declines,” he said.

Shortly before Powell made his comments, a major readout on the health of the U.S. manufacturing sector showed that activity there remained subdued and factory employment fell. The Institute for Supply Management's Purchasing Managers Index now shows the sector has been shrinking for thirteen months in a row, the longest period in more than two decades, while demand for goods continues to decline.