The Federal Reserve has continued its path of raising interest rates after a pause in its June meeting, with Chair Jerome Powell leaving open the possibility of further hikes based on incoming data. Policymakers decided to lift fed fund rate by 25 basis points in their July policy meeting for the 11th time since March 2022 to curb inflation. This move was widely anticipated by Wall Street, and the following Powell remarks were a thing of volatility. Powell made no promises either way for the September meeting, which is eight weeks away but will continue to assess new information. Between July and September policy meetings, the market has to discount two important data points, i.e., job reports, two more CPI reports and ECI report, which would keep the option to hike or pause "live". However, a continued slowing of inflation and weaker economic data may also prompt policymakers to pause.

Powell acknowledged that inflation has fallen from the highs of last year without causing serious damage to the economy. As the Fed, after 16 months of tightening, has been able to cut down inflation by half, the inflation stanza is still away from the Fed's acceptable limit of 2% due to a tight labor market. While the central bank is balancing the need for further rate increases against the risks of going too far, the task of controlling inflation will likely require some economic losses, Powell said.

On being asked about the likely hood of additional rate hikes, the Fed chair replied that it is too soon to tell whether the hike would conclude a series of increases aimed at cooling the economy and bringing down inflation. The focus will be on moderate growth, supply and demand balance, particularly in the labor market, and assessing the data to determine if further rate hikes are necessary.

Fed Chair Powell announced that Fed staffers no longer project a recession in the US economy, citing a slowdown in growth starting later this year. Wall Street is already talking about a soft landing scenario and is more confident now that the US can avoid a recession. Powell noted that his staff's forecast is independent from that of FOMC board members, who vote on interest rate decisions, and shouldn't be viewed as paramount to their outlook. He also believes there is now at least a "pathway" to a soft landing—where inflation fades without the need for a job-killing recession.

Concluding with Powell's words: "Looking ahead, we will continue to take a data-dependent approach in determining the extent of additional policy firming that may be appropriate. I’ll have more to say about monetary policy after briefly reviewing economic developments."