The United States Federal Reserve held a meeting that ran from October 31 to November 1. Industry experts anxiously awaited statements from US Fed chairman Jerome Powell. Ultimately, the American central bank opted to hold on any interest rate movements. This spurred hot takes from analysts and onlookers of all stripes. The prevailing attitude was that the US Fed had essentially signalled that it was through with interest rate hikes, and that it would be ready for a downward move in the months ahead.
This week, chairman Powell made statements that indicate the death of the current interest rate tightening cycle may have been exaggerated, at least right now. In a speech to the House Financial Services Committee, Powell said that it would not be appropriate for the Fed to raise rates with inflation moving in the right direction.
“If it becomes appropriate,” Powell said, referring to an interest rate increase. “We will not hesitate to do so.” However, Powell did say that the central bank faces an uncertain path if interest rates are raised too high. High interest rates could falter the economy, while interest rates that are too low could lead to another inflation surge.
“We will continue to move carefully,” Powell said. “Allowing us to address both the risk of being misled by a few good months of data and the risk of over-tightening.” Powell’s statements may spook some who are worried about further rate tightening. However, when examined closely, the chairman continues to strike a moderating tone that shows he is aware of the risks of further interest rate hikes.