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Powell: Fed rate cut speculation is 'premature,' rate hikes still possible

Federal Reserve Chair Jerome Powell offered a new warning to investors who believe the Fed is finished raising rates and will soon pivot to cutting, saying the central bank needs to see more evidence that inflation is on its way back to the Fed’s 2% target.

"It would be premature to conclude with confidence that we have achieved a sufficiently restrictive stance, or to speculate on when policy might ease," Powell said Friday in prepared remarks at Spelman College in Atlanta.

WASHINGTON DC, UNITED STATES - NOVEMBER 09: Jerome Powell, Chairman of the U.S. Federal Reserve, speaks during the 24th Jacques Polak Annual Research Conference at the International Monetary Fund (IMF) Headquarters in Washington DC, United States on November 09, 2023. (Photo by Celal Gunes/Anadolu via Getty Images)
Jerome Powell, chairman of the Federal Reserve. (Celal Gunes/Anadolu via Getty Images) (Anadolu via Getty Images)

While he acknowledged that monetary policy is "well into restrictive territory," he also kept more rate hikes on the table.

"We are prepared to tighten policy further if it becomes appropriate to do so," he added.

Read more: What the Fed rate-hike pause means for bank accounts, CDs, loans, and credit cards

The comments follow a fresh read on the Fed’s favored inflation measure — the core Personal Consumption Expenditures index — that showed inflation continues to slowly come down.

Core PCE clocked in at 3.5% for the month of October, down from 3.7% in September, continuing a downward trend from 4.3% back in June.

Core PCE is the inflation measure most closely watched by the Fed and therefore is followed closely by investors.

Before the release of the new numbers Thursday, investors had upped bets that the Fed was likely done hiking. Some are predicting cuts during the first half of 2024.

Billionaire investor Bill Ackman even said this week he expects to the Fed to start cutting sooner than markets anticipated, in the first quarter.

The last time the Fed's Federal Open Market Committee met, it elected to keep interest rates unchanged in a range of 5.25%-5.50%, a 22-year high. It meets for the last time this year on Dec. 12-13.

Powell, in his speech, highlighted that core inflation ran at an annual rate of 2.5% over the six months ending in October.

"While the lower inflation readings of the past few months are welcome, that progress must continue if we are to reach our 2% objective," he said.

Powell and his colleagues expect growth and consumer spending will slow over the next year as the impact of the pandemic fades and higher rates slow growth. The full effects of the Fed’s aggressive rate hikes have likely not yet been felt, he said.

The Fed chair reiterated that the outlook for the economy is unusually uncertain and that the Fed is "moving forward carefully" and making decisions meeting by meeting.

That suggests that the Fed will hold interest rates steady at its next meeting in December while stopping short of declaring victory in the fight to bring down inflation.

Other comments this week from Fed officials back that up.

New York Fed President John Williams, for example, said that inflation remains "too high" and the Fed’s work is "not nearly done."

San Francisco Fed President Mary Daly said in an interview published by a German newspaper that rates are in a "very good place" but that it is too soon to talk about hikes being over or when cuts could begin.

"I’m not thinking about rate cuts at all right now," she said. "I’m thinking about whether we have enough tightening in the system and are sufficiently restrictive to restore price stability."

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