Jerome H. Powell, the chair of the Federal Reserve, suggested on Friday that the central bank may be done raising interest rates if inflation and the economy continue to cool as expected, saying that central bankers could raise interest rates further if that became necessary.
“It would be premature to conclude with confidence that we have achieved a sufficiently restrictive stance, or to speculate on when policy might ease,” Mr. Powell said in a speech at Spelman College. “We are prepared to tighten policy further if it becomes appropriate to do so.”
Mr. Powell’s comments are likely to cement an already-widespread expectation that the Fed will leave interest rates unchanged at its meeting on Dec. 12 and 13. The Fed has already raised interest rates to a range between 5.25 and 5.5 percent, up sharply from near-zero as recently as March 2022. Those higher borrowing costs are weighing on demand for mortgages, car loans and business debt, cooling the economy in a bid to lower inflation.
Given how high interest rates are now, the Federal Open Market Committee has paused its rate increases for several months. Investors have increasingly come to expect that its next move would be to cut rates — though Fed officials have been hesitant to declare victory, or to confidently predict exactly when lower borrowing costs could arrive.
The Fed can “let the data reveal the appropriate path,” Mr. Powell said. “We’re getting what we wanted to get, we now have the ability to move carefully.”
The Fed will release fresh economic projections after the December meeting. Those will show where policymakers expect rates to be at the end of 2024. That will give investors a hint at how much officials expect to lower interest rates next year, but little insight into when the cuts might commence.
Policymakers want to avoid setting interest rates in a way that crushes the economy, risking much-higher unemployment and a recession. But they also want to be sure to fully stamp out rapid inflation, because if price increases are allowed to run too hot for too long, they could become entrenched in the way that consumers and companies behave. That would make rapid inflation even more difficult to get rid of in the longer run.
After months of choppy progress, the Fed has recently received a spate of data suggesting that it is making meaningful progress toward achieving its goals.
Inflation has been moderating noticeably, and the slowdown is coming across a range of products and services. The job market has cooled from white-hot levels last year, although companies are still hiring. Consumer spending is showing some signs of deceleration, though it has not fallen off a cliff.
All of those signals are combining to give central bankers more confidence that interest rates may be high enough to bring inflation back toward their 2 percent goal within a couple of years. In fact, the data are shoring up optimism that they might be able to pull off a historically rare “soft landing”: Cooling inflation gently and without inflicting serious economic pain.
“There’s a path to getting inflation back down to 2 percent without that kind of large job loss,” Mr. Powell said, explaining that he believes a gentle cooling is possible. “We’re on that path.”
Still, inflation has cooled before, only to pick back up, and the staying power of consumer spending has surprised many economists. Given that, officials do not want to celebrate prematurely.
“As the demand- and supply-related effects of the pandemic continue to unwind, uncertainty about the outlook for the economy is unusually elevated,” Mr. Powell said Friday.
The Fed, he said, “is strongly committed to bringing inflation down to 2 percent over time, and to keeping policy restrictive until we are confident that inflation is on a path to that objective.”
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