Fed Chair Jerome Powell says lower rate hike 'makes sense' in December

Nov. 30 (UPI) -- The Federal Reserve has been hinting at the possibility of stepping down from its recent 0.75 percentage point interest rate hikes to a half-percent increase in December.

On Wednesday, Federal Reserve Chair Jerome Powell gave another sign that the smaller rate increase is more likely to come when the Federal Open Market Committee meets Dec. 13 and 14.

Powell spoke at the Brookings Institution in Washington on the economic outlook, inflation and labor market in the United States. The speech was also live streamed via YouTube.

"It makes sense to moderate the pace of our rate increases as we approach the level of restraint that will be sufficient to bring inflation down," he said. "The time for moderating the pace of rate increases may come as soon as the December meeting."

According to Powell, there are several macroeconomic factors at play that the Fed needs to observe before it can restore inflation to 2%. The Fed's interest rate increases are one of the factors it can control, which he said needs to continue, though he does not know what rate will "be sufficient."

"We anticipate ongoing increases will be appropriate," he said.

Powell's comments are similar to those made by Fed Gov. Christopher Waller who said he is encouraged by key market indicators from October. Like Waller, Powell warned that there is still a long way to go to return to a semblance of economic stability.

"We have more ground to cover," Powell said.

The Fed executed four 75-basis-point increases in a row throughout 2022, its most recent being earlier in November. The purpose of the hikes is to cool off the economy and tame rampant inflation. This happens by slowing the growth of demand and bringing it in line with supply, thus allowing the supply chain to keep pace and stabilizing prices.

The October Consumer Price Index and Bureau of Economic Analysis' personal income and outlays report for September indicate the strategy is beginning to yield results, but the Fed is seeking consistency from these reports.

Consumer confidence continues to waver. The Conference Board's Consumer Confidence Index decreased for the second consecutive month, experiencing its largest drop since July in November.

Powell assured it would be some time before the economy truly reflects the Fed's "rapid tightening."

"It is likely that restoring price stability will require holding policy at a restrictive level for some time. History cautions strongly against prematurely loosening policy," he said.

"We will stay the course until the job is done."

Supply chain shortages have been the crux of inflation since 2021. Powell said the chain is starting to catch up, while the labor market is also loosening. The labor market is still incredibly tight though, with available jobs outnumbering available workers about 1.7 to 1.