Will Fed Hike Rates In September? It's Like 'Navigating By The Stars Under Cloudy Skies,' Powell Says

The Federal Reserve has left some wiggle room regarding rate decisions in its upcoming meeting on Sept. 19-20. But the overarching sentiment from chair Jerome Powell's speech was one of caution and vigilance. 

What Happened: In his address at Jackson Hole, Wyoming, Powell indicated that rates might not only persist, but could even climb further if the economy and inflationary pressures don't subside.

Central to Powell's address at the annual conference of the U.S. central bank, was the commitment to a "restrictive" monetary stance until there's a solid trajectory towards the 2% inflation target.

"Although inflation has moved down from its peak — a welcome development — it remains too high," Bloomberg quoted Powell saying. "We are prepared to raise rates further if appropriate, and intend to hold policy at a restrictive level until we are confident that inflation is moving sustainably down toward our objective."

With the economy's robust performance and persistent low unemployment, this monetary posture could be a mainstay for the foreseeable future.

Also Read: El-Erian Lists 3 Possible Paths For Fed's Powell At Jackson Hole: 'If I Were Advising Him ...'

Why It Matters: Yale professor William English weighed in, stating, "They haven’t seen the economy slow as much as they’d like, or the labor market slow as much as they’d like."

Despite potential hesitations about a rate hike in September, the end of the tightening phase seems distant.

The Fed's aim is clear: to deter any premature investor expectations of rate reductions that could inadvertently fuel growth.

While there's a consensus among Fed officials about the need for elevated rates, the path forward is debated.

"Under-tightening would be a worse mistake than over tightening a little bit because we can course-correct that," Cleveland Fed President Loretta Mester told Bloomberg. "We’re going to stay the course in terms of our monetary policy, making sure that we are restrictive enough so that inflation comes back down."

Charting the course is fraught with complexities, aptly described by Powell as "navigating by the stars under cloudy skies." 

"In such circumstances, risk-management considerations are critical," Powell noted. "We will proceed carefully as we decide whether to tighten further or, instead, to hold the policy rate constant and await further data."

What's Next: As the Fed gears up to release its updated forecasts next month, it's safe to say that another hike will occur before the year concludes.

After September, the Fed is expected to meet on Oct. 31 and Nov. 1, as well as on Dec. 12-13.

Now Read: 'Rich Dad Poor Dad' Author Warns 'More Banks About To Fail': 'I Would Not Believe Anything Pres Biden ... Powell or ... Yellin Say'

This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.