by Howard Schneider and Ann Saphir
WASHINGTON (Reuters) – U.S. Federal Reserve (Fed) officials “are not convinced” that interest rates are high enough to combat inflation, U.S. central bank Chairman Jerome Powell said on Thursday .
The Fed “is committed to reaching a sufficiently restrictive monetary policy position to bring inflation back (towards the objective of) 2%”, declared Jerome Powell. “We are not convinced that we have achieved this position.”
“If it is appropriate to tighten our policy further, we will not hesitate to do so,” Jerome Powell said at a conference organized by the International Monetary Fund (IMF).
The Fed president added, however, that any decision would be taken “with caution (…) allowing us to face both the risk of being misled by a few good months of (economic) data and the risk of “excessive tightening. We make our decisions from meeting to meeting.”
Jerome Powell said there was still a long way to go to restore price stability.
If Jerome Powell’s remarks on the Fed’s short-term outlook for monetary policy hardly went beyond those made after the last meeting of the American central bank, they served to deepen the president’s point of view. the Fed on how the final phase of the fight against inflation might play out.
At its meeting on October 31 and November 1, the Fed decided to keep its rates unchanged, in a range of 5.25%-5.50%.
The progress made so far in the United States on inflation has been relatively inexpensive in terms of job losses or rising unemployment.
But “it is not certain that we can further improve the supply side,” said Jerome Powell, which could mark the end of this relatively painless progress in reducing inflation.
In the future, “it may be that a greater share of the progress made in reducing inflation will have to come from tight monetary policy limiting the growth of aggregate demand,” he said.
The Fed may, in the longer term, be less able than in the past to ignore supply shocks causing persistent price increases, as experience with the pandemic has shown that “it can be difficult to disentangle supply shocks demand shocks in real time, and also to determine the duration of persistence of one or the other.
This could mean that in the future, policymakers will be more likely to respond to supply-driven price increases than they otherwise would have been, given the tendency to “consider” many supply-side issues. offer as likely to be short-lived in a dynamic economy, Jerome Powell said.
“Supply shocks that have a persistent effect on potential output may require restrictive policy to better align aggregate demand with the suppressed level of aggregate supply,” he said.
(Reporting Howard Schneider and Ann Saphir; French version Camille Raynaud)
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