The Federal Reserve warns that US inflation is still too high

Inflation remains “too high” and interest rates may have to rise again to bring it back under control, said the head of the Federal Reserve.

In a highly anticipated speech at the annual Jackson Hole symposium of central bankers in Wyoming, Jerome Powell said the task of curbing inflation in the United States is far from over.

And he stressed that the Fed will “keep going until the job is done.”

The comments sent the dollar higher in currency markets and borrowing costs in bond markets rose as investors digested his apparently aggressive tone.

Analysts said the speech reinforced views that interest rates in the US and the rest of the world were likely to “stay higher for longer” — though many still expect the Fed to start cutting rates next year as the economy slows .

“It’s the Fed’s job to bring inflation back to our target of 2 percent, and we will do that,” Powell said. Although inflation has fallen from its peak – a welcome development – ​​it remains too high. We are prepared to raise interest rates further if necessary and intend to keep policy at a restrictive level until we are confident that inflation is moving steadily downwards towards our target.”

Inflation in the US has fallen from 9 percent to 3.2 percent in the past forty years.

After raising rates from near zero to well between 5.25 and 5.5 percent, Powell said Fed officials would “proceed with caution” when considering further rate hikes.

At the same time, he suggested the Fed could keep rates stable at its next meeting in September, adding that decisions would depend on economic data.

“Given how far we’ve come, we are in a position to carefully review the incoming data and evolving prospects and risks at upcoming meetings,” he said.

Michael Arone, chief investment strategist at State Street Global Advisors, said: “Powell continues to walk on a tightrope.

“I think he shows that he is pleased with how far monetary policy has come and how inflation has been reduced.

“But he still holds tight to the idea that they’re watching closely and that they still have work to do.”

Central banks around the world have raised interest rates in a desperate fight to curb runaway inflation. The Bank of England has raised interest rates from 0.1% to 5.25% since December 2021, raising borrowing costs for millions of people, including households with mortgages. But inflation remains stubbornly high – down from a peak of 11.1 percent, but still more than three times the 2 percent target of 6.8 percent.

The Bank is expected to raise interest rates again to 5.5 percent next month.

But with the economy slowing and shocking numbers this week showing private business declining, a debate is raging over how much further this will go. The European Central Bank is also faced with a dilemma – especially given the moribund state of the German economy. After raising rates from negative to 3.75 percent in just a year, it is believed the ECB can hit the pause button next month and leave borrowing costs unchanged.

However, despite growing hopes that interest rates around the world will be close to their peak, meaningful cuts still seem a long way off as the battle against inflation continues.