At the same time,"core" inflation, which excludes volatile food and energy prices, has remained elevated at 4.7% despite the Fed's streak of 11 rate hikes beginning in March 2022. And by raising its key rate from near zero to a 22-year high of 5.4%, the Fed has made borrowing much more expensive for consumers and businesses. Soaringthrough the first seven months of 2023 compared with the same period last year, causing a potential headwind for the economy.
Many analysts say that despite the progress the Fed has made so far, Powell can't afford to let down his guard and say anything that would sound like a declaration of victory. They instead expect him to signal that he intends to keep rates at high levels for as long as needed. Even if the Fed's policymakers don't further increase borrowing costs, they're unlikely to reduce them anytime soon.
Surprisingly, despite the Fed's aggressive rate hikes, the U.S. unemployment rate stands exactly where it did when Powell spoke last year: 3.5%, barely above a half-century low. Still, Rajan said he doubts the Fed can achieve its 2% inflation goal without causing some rise in unemployment. A higher jobless rate would likely slow wage growth and ease inflation pressures. When layoffs spread, workers are typically less able to gain big pay raises.
“We are just going to have to stay restrictive for quite a while,” Bostic said,"until we are sure, sure, sure, sure, sure, sure that inflation is not going to bounce off and bubble up far away from our target.”