Powell isn't likely to say whether the Fed will continue raising rates. But he may signal that any rate cuts are unlikely until well into next year. The central bank has already helped drive inflation down from painfully high levels. But Fed officials have said they need to keep rates high to further slow borrowing and spending and reduce inflation to their two per cent target.
Now, the Fed faces a more subtle challenge: How to navigate a narrow path requiring it to slow growth and further cool inflation without derailing the economy and causing a recession. Economists call this rare outcome a “soft landing.” “The notion that we’ve shifted from a painful disinflation to painless disinflation would undercut the Fed,” Rajan said. “It would suggest they don’t have the stomach” to do what's needed to tame inflation.
That expectation might have changed in light of milder inflation readings the government has issued in recent weeks. The Fed's policymakers will update their interest rate projections when they next meet Sept. 19-20.