Jerome H. Powell, the chairman of the Federal Reserve, reiterated the central bank’s determination to proceed “cautiously” with further interest rate hikes in a speech on Thursday. But he also said the central bank may need to raise interest rates more if economic data remains positive.

Mr. Powell sought to present a balanced picture of the challenge facing the Fed in his remarks to the Economic Club of New York. He emphasized that the Fed is trying to balance two goals: getting inflation fully under control, but also avoiding doing too much and causing unnecessary damage to the economy.

Still, this is a complicated moment for the central bank as the economy behaves in surprising ways. Officials have quickly raised interest rates over the past 19 months to a range of 5.25 to 5.5 percent. Policymakers are currently discussing whether they need to raise interest rates again in 2023.

The higher borrowing costs are intended to slow economic activity—slowing home purchases, business expansion, and demand of all kinds—to cool inflation. However, growth so far has been unexpectedly robust. Consumers spend money. Companies are hiring. And while wage gains have moderated, overall growth has been robust enough to make some economists question whether the economy is slowing enough to push inflation back toward the Fed’s 2 percent target.

“We are attentive to recent data demonstrating the resilience of economic growth and labor demand,” Powell admitted Thursday. “Additional evidence of continued above-trend growth or that labor market tightness is no longer easing could jeopardize further progress on inflation and justify further tightening of monetary policy.”

Mr Powell called the latest growth data a “surprise” and said it came as consumer demand held up much stronger than expected.

“It could simply be that interest rates have not been high enough for long enough,” he said, later adding: “There is no evidence that policy is currently too strict.”

Economists interpreted his comments to mean that while the Fed is unlikely to raise interest rates at its upcoming meeting that ends Nov. 1, it leaves the door open for a possible hike afterward. The Fed’s final meeting of the year ends on December 13th.

“It didn’t sound like he wanted to raise rates again in November,” said Michael Feroli, chief U.S. economist at JP Morgan, explaining that he expects the Fed to do so in its decision in December to do will rely on data.

“He definitely hasn’t closed the door to further rate hikes,” Feroli said. “But he also didn’t signal that anything was imminent.”

Kathy Bostjancic, chief economist at Nationwide Mutual, said the comments were “balanced because there is so much uncertainty.”

The Fed chief had reasons to keep his options open. Although growth has been strong in recent data, the economy could be primed for a more significant slowdown.

The Fed has already raised short-term interest rates significantly, and those actions “could still have an impact” to slow the economy, Mr. Powell noted. More importantly, long-term interest rates in the market have skyrocketed over the past two months, making it significantly more expensive to borrow money to buy a home or a car.

These tighter financial conditions could hurt growth, Mr. Powell said.

“Financial conditions have tightened significantly in recent months and longer-term bond yields have been a key driving factor in this tightening,” he said.

Mr. Powell pointed to several possible reasons for the recent rise in long-term interest rates: higher growth, high deficits, the Fed’s decision to reduce its own securities holdings and technical market factors could all contribute.

“There are a lot of candidate ideas and a lot of people feel like their priorities have been vindicated,” Powell said.

He later added that the bottom line is that the rise in market interest rates is “something we’ll be looking at” and that it could “broadly” reduce the incentive for the Fed to raise interest rates further.

The war between Israel and Gaza – and the associated geopolitical tensions – also contribute to uncertainty about the global outlook. It is still too early to estimate how this will affect the economy, although it could undermine business and consumer confidence.

“Geopolitical tensions are very high and pose significant risks to global economic activity,” Powell said.

There was a choppy mood in equity markets as Mr. Powell spoke, suggesting investors were struggling to understand what his comments meant for the immediate interest rate outlook. Higher interest rates tend to be bad news for stock values.

The S&P 500 ended the day down almost 1 percent. The move coincided with a further rise in crucial market interest rates, with the 10-year Treasury yield rising nearly 5 percent, a threshold not exceeded since 2007.

The Fed Chairman reiterated the Fed’s determination to control inflation even in difficult times. Since the summer of 2022, consumer price increases have declined significantly and peaked at around 9 percent. However, they remained at 3.7 percent last month, still well above the around 2 percent that prevailed before the outbreak of the corona pandemic.

“A range of uncertainties, both old and new, complicate our task of balancing the risk of tightening monetary policy too much against the risk of tightening too little,” Powell said. “Given the uncertainties and risks and given the progress we have made, the committee is proceeding cautiously.”

Joe Rennison contributed reporting.

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