"Doing too little could allow above-target inflation to become entrenched and ultimately require monetary policy to wring more persistent inflation from the economy at a high cost to employment," he said."Doing too much could also do unnecessary harm to the economy."A need to 'proceed carefully'
Markets of late have been pricing in little chance of another hike at the September meeting of the Federal Open Market Committee, but are pointing to about a 50-50 chance of a final increase at the November session."Given how far we have come, at upcoming meetings we are in a position to proceed carefully as we assess the incoming data and the evolving outlook and risks," he said.
The three"broad components" of which he spoke entail goods, housing services such as rental costs and nonhousing services. He noted progress on all three, but said nonhousing is the most difficult to gauge as it is the least sensitive to interest rate adjustments. That category includes such things as health care, food services and transportation.
Some legislators, particularly on the Democratic side, have suggested the Fed raise its 2% inflation target, a move that would give it more policy flexibility and might deter further rate hikes. But Powell rejected that idea, as he has done in the past.On another issue, Powell chose largely to stay away from the debate over what is the longer-run, or natural, rate of interest that is neither restrictive nor stimulative – the"r-star" rate of which he spoke at Jackson Hole in 2018.