“If you get it right the first time, you might as well try again” could be Fed Chairman Jerome Powell’s mantra as he prepares for this week’s policy meeting, economists say.
Powell’s speech at the central bank’s annual summit in Jackson Hole, Wyo., last month seemed to satisfy both hawks and doves, with a combination of anti-inflation rhetoric and dovish details showing there were no concrete plans to raise interest rates to increase again.
“The Jackson Hole speech was a brilliant message because everyone got what they wanted from it,” Bill Adams, chief economist at Comerica Bank in Dallas, said in an interview.
He predicted that Powell, following that speech, will emphasize that the Fed is committed to returning inflation to its 2% target, and that the central bank is firmly convinced that interest rates will remain at high levels for an extended period of time. level will remain.
Read: Four things to watch for at next week’s Fed policy meeting
Powell’s cautious approach has also resonated with other Fed officials.
Fed Governor Christopher Waller told CNBC that “nothing says we have to do anything in the short term, so we can just sit there. [and] and wait for the data.”
In an interview with MarketWatch, Susan Collins, president of the Boston Federal Reserve Bank, said the central bank has earned the right to take its time with interest rate decisions.
The Fed can also be patient because the inflation trend is moving in the right direction, Yelena Shulyatyeva, senior U.S. economist at BNP Paribas, said in an interview.
Even though August’s consumer inflation report was not as favorable as June and July, “we see that inflation levels have come back,” she said.
At the same time, the labor market has held up, with some very gradual signs of weakening. A year ago, many economists said that reducing inflation without a large increase in unemployment was not possible.
What will the Fed do?
Economists see the Fed holding rates steady when its meeting ends on Wednesday, after raising policy rates by 25 basis points to a range of 5.25%-5.5% at its last meeting in July.
The central bank is likely to suggest at one of its two remaining meetings this year that it could raise rates by 25 basis points, but has made no commitment to do so.
Even if the Fed’s dot plot forecast shows another rate hike this year, the Fed “will not take the opportunity to hike again unless progress on inflation and the labor market stalls amid stronger growth.” , said Krishna Guha, vice chairman of the Fed. Evercore ISI.
Many economists, including Michael Hanson, senior global economist at JPMorgan, think the Fed is done with rate hikes. Others think the central bank will make one more rate hike before stopping, while few think it may have to do more.
That debate will continue until the next Fed meeting, scheduled for Oct. 31-Nov. 1.