The US won’t return to 2% inflation until at least 2025, Fed Chair Jay Powell has said.
That suggests the central bank’s fight against inflation is far from over – underscoring the possibility of more interest-rate hikes.
Higher rates won’t be good news for stocks, which have rallied amid bets the Fed is close to ending its tightening campaign.
US inflation is unlikely to fall to the Federal Reserve’s 2% target until at least 2025, according to Jerome Powell.
The Fed chair’s remarks suggest the central bank’s fight against inflation is far from over – raising the possibility that policymakers will keep raising interest rates until price pressures cool further.
The US monetary authority left rates unchanged this month for the first time since last spring, but signaled it may raise them twice more before year-end.
“I don’t see us getting back to 2% this year or next year,” Powell said at the 2023 ECB forum. “I see us getting there the year after.”
US inflation has been declining steadily in recent months, thanks to the Fed’s policy efforts to tame price pressures. The annual pace of consumer-price increases cooled to 4% in May from a 40-year high of 9.1% reached in mid-2022, but it still remains twice the central bank’s target.
The Fed has boosted benchmark borrowing costs by a staggering 500 basis points since early 2022 to rein in inflation, in what has been the most aggressive spell of monetary tightening since the 1980s. Powell’s latest comments indicate the central bank’s battle against inflation is far from done.
US equities have enjoyed an impressive rally so far this year, thanks in part to expectations that the Fed is close to ending its interest-rate increases. They had a dismal 2022 when rates were being raised at an accelerated pace.
Higher borrowing costs tend to discourage spending and investment, eating into companies’ profits and potentially sparking a downturn in the economy. Many experts have been predicting recession throughout 2023 – though this has not yet materialized.
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Source: https://finance.yahoo.com/news/feds-powell-says-inflation-isnt-200002808.html