Federal Reserve watchers planned to watch the Chair Jerome Powell talk at the Brookings Institution for signs of a rate hike slowdown. And they got at least that. But any hopes for lower rates are far on a back burner.
Start with the relatively welcome news of a rate increase slowdown in Powell’s speech: “Monetary policy affects the economy and inflation with uncertain lags, and the full effects of our rapid tightening so far are yet to be felt. Thus, it makes sense to moderate the pace of our rate increases as we approach the level of restraint that will be sufficient to bring inflation down. The time for moderating the pace of rate increases may come as soon as the December meeting.”
However, Powell was as clear as a slamming hammer that rates would continue to go up. “My colleagues and I are acutely aware that high inflation is imposing significant hardship, straining budgets and shrinking what paychecks will buy,” he said. “This is especially painful for those least able to meet the higher costs of essentials like food, housing, and transportation. Price stability is the responsibility of the Federal Reserve and serves as the bedrock of our economy. Without price stability, the economy does not work for anyone. In particular, without price stability, we will not achieve a sustained period of strong labor market conditions that benefit all.”
While this was the opening, he repeatedly found different ways of saying that inflation was far from tamed. “Returning to monetary policy, my FOMC colleagues and I are strongly committed to restoring price stability,” he said. “After our November meeting, we noted that we anticipated that ongoing rate increases will be appropriate in order to attain a policy stance that is sufficiently restrictive to move inflation down to 2 percent over time.”
And even with slowing, “It is likely that restoring price stability will require holding policy at a restrictive level for some time. History cautions strongly against prematurely loosening policy. We will stay the course until the job is done.”
Fed Governor Lisa D. Cook took the same general line in a speech at the Detroit Economic Club, as the Fed finally tries to get all officials on the same hymnal rather dueling “crank it up” and “at least slow down for a bit” pronouncements from officials.
Maybe December will see an additional 50-basis point bump. If various numbers are more encouraging, perhaps the following Federal Open Market Committee meeting would move to a quarter point increase. But taking all this forceful communication at its institutional word, expect financing rates to continue to be at their relatively elevated—although historically normal—levels and then even higher.