To that end, inflation has been trending down over the past year, though for the first time in 13 months, the consumer price index rose 3.2% in July from a year earlier, above the 3% year-over-year increase in June, according to data the Bureau of Labor Statistics released Aug. 10. But stepping back, the monthly CPI has declined precipitously since reaching a 40-year high of 9.1% in June 2022.
With high inflation as its focus, the Fed has raised the federal funds rate, which is now at its highest level since 2001, 525 basis points since March 2022, including a quarter-point rate hike at its July 26 meeting. The federal funds rate now stands at a range of 5.25% to 5.5%, and Mr. Powell signaled additional hikes might be warranted depending on forthcoming economic data.
Getting inflation back down to the Fed's 2% target is expected to require a period of below-trend economic growth as well as some softening in labor market conditions, he added.
And the Fed is attentive to the fact that the economy might not be cooling as expected. Mr. Powell noted that gross domestic product growth has come in above expectations and above its longer-run trend; recent readings on consumer spending have been especially robust; and the housing sector is showing signs of ramping back up.
All the while, unemployment has remained low, and in July, the unemployment rate dipped slightly to 3.5%, down from 3.6% in June.
Additional evidence of persistently above-trend growth could put further progress on inflation at risk and could warrant further tightening of monetary policy, Mr. Powell said.
However, he also noted that there are often lags between monetary tightening and its impact on economic activity.
Those lags present uncertainties that "complicate our task of balancing the risk of tightening monetary policy too much against the risk of tightening too little," Mr. Powell said. "Doing too little could allow above-target inflation to become entrenched and ultimately require monetary policy to wring more persistent inflation from the economy at a high cost to employment. Doing too much could also do unnecessary harm to the economy."
Like he has throughout the Fed's rate tightening campaign, Mr. Powell said the Fed will continue to make policy decisions based on incoming data.
The Fed will "proceed carefully as we decide whether to tighten further or, instead, to hold the policy rate constant and await further data," he said. "Restoring price stability is essential to achieving both sides of our dual mandate. We will need price stability to achieve a sustained period of strong labor market conditions that benefit all."
He concluded, "We will keep at it until the job is done."
The Fed's next meeting is Sept. 19-20.