Powell: Fed to keep rates higher for longer to cut inflation

Federal Reserve Chairman Jerome Powell speaks at a news conference following a Federal Open Market Committee meeting, Wednesday, Nov. 2, 2022, in Washington. (AP Photo/Patrick Semansky)
Federal Reserve Chairman Jerome Powell speaks at a news conference following a Federal Open Market Committee meeting, Wednesday, Nov. 2, 2022, in Washington. (AP Photo/Patrick Semansky)

By CHRISTOPHER RUGABER

AP Economics Writer

WASHINGTON (AP) -- The Federal Reserve will push rates higher than previously expected and keep them there for an extended period, Chair Jerome Powell said Wednesday, in remarks likely intended to underscore the Fed's single-minded focus on combating stubborn inflation.

Powell also signaled in a written speech to be delivered to the Brookings Institution that the Fed may increase its key interest rate by a smaller increment at its December meeting, only a half-point, after four straight three-quarter point hikes. But Powell also stressed that the smaller hike shouldn't be taken as a sign the Fed will let up on its inflation fight anytime soon.

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

Powell acknowledged there has been some good news on the inflation front, with the cost of goods such as cars, furniture, and appliances in retreat. He also said that rents and other housing costs -- which make up about a third of the consumer price index -- were likely to decline next year.

But the cost of services, which includes dining out, traveling, and health care, are still rising at a fast clip and will likely be much harder to rein in, he said.

"Despite some promising developments, we have a long way to go in restoring price stability," Powell said.

Last month's inflation report showed that prices rose 7.7% in October from a year earlier, straining many families' budgets. That is down, however, from a 9.1% peak in June.

The Fed has lifted its key rate six times this year, to a range of 3.75% to 4%, the highest in 15 years. Those increases have sharply boosted mortgage rates, causing home sales to plunge, and it has raised costs for most other consumer and business loans.

Fed officials hope that by tightening credit they can slow consumer and business spending, reduce hiring and wage growth, and cool inflation. Powell said the Fed's efforts have slowed demand, and will have to keep it slow "for an extended period."

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