Federal Reserve Chairman Jerome Powell said Tuesday that inflation is beginning to ease, though he expects it to be a long process and cautioned that interest rates could rise more than markets anticipate if the economic data doesn’t cooperate.
“The disinflationary process, the process of getting inflation down, has begun and it’s begun in the goods sector, which is about a quarter of our economy,” the central bank chief said during an event in Washington, D.C. “But it has a long way to go. These are the very early stages.”
Powell spoke in a question-and-answer session at the Economic Club of Washington, D.C., with Carlyle Group co-founder David Rubenstein. Powell is a former partner at the firm.
Markets briefly turned positive as Powell spoke as investors are hoping the Fed soon will halt the aggressive interest rate hikes it began last year. However, the major averages later flipped back negative after Powell cautioned about strong economic data like last week’s jobs report for January, before turning positive again.
Asked whether it would have influenced the Fed’s rate call if it had the jobs report before the policy meeting, Powell said, “We don’t get to play it that way unfortunately.” The report showed that nonfarm payrolls rose by 517,000 in January, nearly triple the Wall Street estimate.
He said if the data shows that inflation is running hotter than the Fed expects, that will mean higher rates.
“The reality is we’re going to react to the data,” Powell said. “So if we continue to get, for example, strong labor market reports or higher inflation reports, it may well be the case that we have do more and raise rates more than is priced in.”