The Federal Reserve could slow the pace of rate increases as soon as its December meeting, Chairman Jerome H. Powell said Wednesday.
In its ongoing battle to rein in inflation, the Federal Open Market Committee has rapidly raised the federal funds rate this year, including four consecutive 75-basis-point increases. The range of the federal funds rate now stands at 3.75% to 4% and another increase is widely expected at the committee's next meeting Dec. 13-14.
"Monetary policy affects the economy and inflation with uncertain lags, and the full effects of our rapid tightening so far are yet to be felt," Mr. Powell said during a speech at the Brookings Institution. "Thus, it makes sense to moderate the pace of our rate increases as we approach the level of restraint that will be sufficient to bring inflation down."
Mr. Powell said the committee may begin moderating rate increases — investors expect a 50-basis-point increase in December — but the "timing of that moderation is far less significant than the questions of how much further we will need to raise rates to control inflation, and the length of time it will be necessary to hold policy at a restrictive level."
He reiterated that history from previous high inflationary periods cautions strongly against prematurely loosening monetary policy and the Fed will "stay the course until the job is done."
During his speech, Mr. Powell focused on core personal consumption expenditures inflation, which omits the food and energy inflation components. Twelve-month core PCE inflation stands at 5% in the Fed's October estimate, Mr. Powell said, about where it stood in December 2021 when Fed's policy tightening was in its early stages.
As for the future, "The truth is that the path ahead for inflation remains highly uncertain," Mr. Powell said.
Of note, the unemployment rate is now 3.7%, near 50-year lows, and job openings exceed available workers by about 4 million, Mr. Powell said.
During a question-and-answer session, Mr. Powell was asked about the likelihood of a recession. He said the Fed is targeting a "soft landing" where unemployment goes up slightly and goods inflation and housing inflation come down. "I think that's very plausible," Mr. Powell said. "I don't want to be the handicapper on it, and of course our job is to try to achieve that, and I think it's still achievable. If you look at the history, it's not a likely outcome, but I would just say, this is a different set of circumstances."