Fed’s Powell Signals December Slowdown in Rate Increases

Jerome H. Powell, the Federal Reserve chair, said the central bank could slow its interest rate increases at its meeting next month — even as he emphasized that policymakers have more work to do to ensure that rapid price inflation will return to normal.

“The time for moderating the pace of rate increases may come as soon as the December meeting,” Mr. Powell said, referencing the Dec. 13-14 gathering. Still, Mr. Powell said in remarks at the Brookings Institution that “ongoing increases will be appropriate” and that what matters most is the level rates ultimately rise to and how long they remain elevated, rather than the rate of change.

The Fed chair acknowledged that inflation has shown hopeful signs of slowing, but he also warned against reading too much into one month of data. He emphasized that wage growth remains too rapid to allow price increases to ease back to the Fed’s 2 percent annual goal. Given that, he underlined repeatedly that central bankers will need to keep lifting interest rates — probably by more than they had predicted as recently as September — to ensure that they get the job done.

“Despite some promising developments, we have a long way to go in restoring price stability,” Mr. Powell said.

The Fed has lifted interest rates from near-zero as recently as March to a range of 3.75 to 4 percent at its meeting earlier this month. Its past four rate moves have come in three-quarter-point increments — huge adjustments, the likes of which the Fed had not previously made since 1994. Central bankers have been clear that they think it would be wise to slow the pace, dialing back to a half-point rate move as soon as their next meeting.

Inflation F.A.Q.

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What is inflation? Inflation is a loss of purchasing power over time, meaning your dollar will not go as far tomorrow as it did today. It is typically expressed as the annual change in prices for everyday goods and services such as food, furniture, apparel, transportation and toys.

What causes inflation? It can be the result of rising consumer demand. But inflation can also rise and fall based on developments that have little to do with economic conditions, such as limited oil production and supply chain problems.

Is inflation bad? It depends on the circumstances. Fast price increases spell trouble, but moderate price gains can lead to higher wages and job growth.

How does inflation affect the poor? Inflation can be especially hard to shoulder for poor households because they spend a bigger chunk of their budgets on necessities like food, housing and gas.

Can inflation affect the stock market? Rapid inflation typically spells trouble for stocks. Financial assets in general have historically fared badly during inflation booms, while tangible assets like houses have held their value better.

Mr. Powell’s comments are likely to cement that expectation, which was already heavily factored into market pricing.

Moving less quickly will allow the Fed to keep up its battle against inflation while giving policymakers more time to see how the substantial rate moves they have already made are playing out. While interest rate changes work promptly to slow the housing market, their full effects take months or years to play through the economy.

But Mr. Powell and his colleagues have been walking a careful line as they prepare investors for a slowdown: They do not want to signal that they are giving up in their battle against rapid price increases. If investors believe that the Fed is dialing back its plans and asset prices rise in a sign of investor relief, money could become cheaper and easier to borrow, undoing some of the monetary restraint that the central bank has ushered in.

Mr. Powell in his remarks repeatedly emphasized that while the time is coming to slow policy moves, the Fed is far from stopping its campaign to vanquish inflation.

“It is likely that restoring price stability will require holding policy at a restrictive level for some time,” he said. “We will stay the course until the job is done.”

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The Fed chair particularly pushed back on any notion that a recent moderation in price increases is a sure sign that inflation will continue to cool.

“Down months in the data have often been followed by renewed increases,” he said. And while many economists expect inflation to moderate next year, “forecasts have been predicting just such a decline for more than a year, while inflation has moved stubbornly sideways.”

Later, Mr. Powell added that “we’re going to have to be humble and skeptical about forecasts for some time.”

Plus, Mr. Powell pointed out, even if goods prices weigh on inflation and rent growth moderates next year as expected, the job market remains very tight — and signs of slowing so far are not conclusive.

When employers are paying more in wages, they are likely to try to pass those climbing labor costs onto their customers in the form of price increases, making wage growth a critical yardstick for inflation watchers.

“We want wages to go up strongly, but they’ve got to go up at a level that is consistent with 2 percent inflation over time,” Mr. Powell said. “You’re 1.5 or 2 percent above that with current wage increases.”

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