Fed chair leaves door open for more rate hikes

ISTANBUL

US Federal Reserve Chair Jerome Powell left the door open Thursday for more interest rate hikes to bring down inflation.

"We know that ongoing progress toward our 2 percent goal is not assured: Inflation has given us a few head fakes," he said at a policy panel at the 24th Jacques Polak Annual Research Conference, hosted by the International Monetary Fund in Washington, D.C.

"If it becomes appropriate to tighten policy further, we will not hesitate to do so," he said.

Powell said the labor market remains tight, although improvements in supply and a gradual easing in demand continue to move it into a better balance.

"The unwinding of pandemic-related supply and demand distortions is playing an important role in the decline of inflation. For example, wage growth has steadily fallen by most measures since mid-2022, despite continued robust job gains, reflecting a resurgence in labor supply thanks to higher labor force participation and a return of immigration to pre-pandemic levels," he said.

Although the US' gross domestic product (GDP) growth was strong in the third quarter, Fed officials expect GDP growth to moderate in coming quarters, according to Powell.

The American economy expanded 4.9% in the third quarter, beating estimates of 4.3%, according to the Commerce Department's first and advanced readings. GDP increased 2.1% in the second quarter, following a 2% gain in the first.

"We will continue to move carefully, however, allowing us to address both the risk of being misled by a few good months of data, and the risk of overtightening. We are making decisions meeting by meeting, based on the totality of the incoming data and their implications for the outlook for economic activity and inflation, as well as the balance of risks, determining the extent of additional policy firming that may be appropriate to return inflation to 2 percent over time," said Powell.

The Fed skipped an interest rate increase for the third time last week, keeping the federal funds rate between the 5.25% - 5.5% target range -- the highest in 22 years.

After soaring to 9.1% in June last year, its highest in more than 40 years, annual US consumer inflation dropped to 3% this June but climbed to 3.7% in September.