Fed's Jerome Powell says strong economy could require rate hikes: 'Inflation is still too high'

Published

1 year ago

October 30, 2023

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The US economy’s strength and continued tight labor markets could warrant further Federal Reserve interest rate increases, Fed Chair Jerome Powell said on Thursday in remarks that appeared to push back against market expectations that the central bank’s rate hikes had reached an end.

“We are attentive to recent data showing the resilience of economic growth and demand for labor. Additional evidence of persistently above-trend growth, or that tightness in the labor market is no longer easing, could put further progress on inflation at risk and could warrant further tightening of monetary policy,” Powell said in remarks to the Economic Club of New York.

For inflation to durably return to the Fed’s 2% target, it “is likely to require a period of below-trend growth and some further softening in labor market conditions,” Powell said.

Since the Fed began raising interest rates in March of 2022 the unemployment rate has varied little from the current 3.8%, below the level most Fed officials feel is noninflationary, and overall economic growth has generally remained above the 1.8% annual growth rate Fed officials see as the economy’s underlying potential.

The Fed is “proceeding carefully” in evaluating the need for any further rate increases, Powell said, likely leaving intact current expectations that the Fed will leave its benchmark policy rate steady at the current 5.25% to 5.5% range at the upcoming Oct. 31-Nov. 1 meeting.

There is evidence the labor market is cooling, Powell said, with some important measures approaching levels seen even before the pandemic.

Powell also noted a number of fresh “uncertainties and risks” that need to be accounted for as the Fed tries to balance the threat of allowing inflation to rekindle against the threat of leaning on the economy more than is necessary.

Those include new geopolitical risks to the economy from the “horrifying” attack on Israel by the Palestinian militant Hamas group, Powell said.

“Our institutional role at the Federal Reserve is to monitor these developments for their economic implications, which remain highly uncertain,” Powell said. “Speaking for myself, I found the attack on Israel horrifying, as is the prospect for more loss of innocent lives.”

He also noted recent market-driven increases in bond yields that have helped to “significantly” tighten overall financial conditions.

“Persistent changes in financial conditions can have implications for the path of monetary policy,” Powell said, with higher market-based interest rates, if sustained, doing the same job as Fed rate increases.

But the Fed chair also voiced what has become a lingering theme at the central bank: That despite steady progress on lowering inflation, the battle isn’t over, with further rate increases still a possibility and the duration of tight monetary conditions still to be determined.

“Inflation is still too high, and a few months of good data are only the beginning of what it will take to build confidence that inflation is moving down sustainably toward our goal,” Powell said, citing the progress made since inflation peaked last year but also noting that one of the Fed’s main measures of inflation remained at 3.7% through September, nearly twice the central bank’s target.

“We cannot yet know how long these lower readings will persist, or where inflation will settle over coming quarters,” Powell said. “The path is likely to be bumpy and take some time…My colleagues and I are united in our commitment to bringing inflation down sustainably to 2%.”

The weeks since the Fed’s September meeting have been unusually turbulent, with worries about regional war in the Middle East rising and bond markets driving market interest rates higher, tightening the financial conditions faced by businesses and households somewhat independent of the Fed.

Data since the Fed’s last meeting also has shown US job growth reaccelerating unexpectedly, retail sales defying predictions of a slowdown and varying measures of prices offering inconsistent signals about whether inflation is on track to return to the Fed’s 2% target in a timely manner.

Powell’s appearance comes less than 48 hours before the beginning of the traditional quiet period ahead of the rate-setting Federal Open Market Committee’s meeting on Oct. 31-Nov. 1. While a handful of other Fed officials have appearances later on Thursday and Friday before blackout begins on Saturday, it is Powell’s remarks that will set the tone for policy expectations heading into that meeting.

Should they leave rates unchanged in two weeks as is now widely expected, it would mark the first back-to-back meetings with no rate increase since the Fed kicked off its hiking campaign in March 2022.

A Reuters poll of more than 100 economists published on Wednesday showed more than 80% expect no rate hike at the next meeting, and most also believe the Fed is done with rate hikes even though a majority of policymakers at their September meeting projected one more quarter-point increase was likely to be needed by year end.

Many in the poll offered the caveat that if progress on inflation stalls out or reverses, the Fed would not hesitate to resume raising rates.

Politics

Minister resigns over cut to international aid budget

Published

3 hours ago

February 28, 2025

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Minister resigns over cut to international aid budget

Anneliese Dodds has quit as international development minister over Sir Keir Starmer’s decision to slash the overseas aid budget to pay for an increase in defence spending.

Ms Dodds, who is also women and equalities minister and attends cabinet, said she was resigning from both posts “with great sadness” but would continue to support the government from the backbenches.

Politics Live: Starmer back in Downing Street after Washington trip

In her resignation letter to the prime minister, she acknowledged there was “no easy path” to fund the boost to defence but claimed there had been a “tactical decision” for the Overseas Development Aid (ODA) budget to “absorb the entire burden”.

She said: “You have maintained that you want to continue support for Gaza, Sudan and Ukraine; for vaccination; for climate; and for rules-based systems.

“Yet it will be impossible to maintain these priorities given the depth of the cut; the effect will be far greater than presented, even if assumptions made about reducing asylum costs hold true.”

Ms Dodds said the cut will likely lead the UK to pull-out from numerous African, Caribbean and Western Balkan nations, as well as a withdrawal of commitments to international banks and a reduced voice in the G7 and G20.

“Ultimately, these cuts will remove food and healthcare from desperate people – deeply harming the UK’s reputation,” she added.

“I know you have been clear that you are not ideologically opposed to international development. But the reality is that this decision is already being portrayed as following in President Trump’s slipstream of cuts to USAID.”

Around £6bn per year will be taken out of the aid budget and transferred over to pay for defence.

That amounts to a reduction in aid spending from 0.5% of GDP to 0.3%.

In a letter responding to Ms Dodd’s resignation, Sir Keir said the decision to cut foreign aid “was a difficult and painful decision and not one I take lightly”.

“However, protecting our national security must always be the first duty of any government and I will always act in the best interests of the British people,” he said.

The resignation comes after a key meeting between Sir Keir and Mr Trump on Thursday, during which the US leader praised the defence sending decision and also touted the prospect of a tariff-free trade deal.

Ms Dodds marks the loss of a fourth minister from the new Labour government, after Louise Haigh and Tulip Siddiq resigned and Andrew Gwynne was sacked.

Conservative MP Andrew Mitchell, who was the international development minister under Rishi Sunak, said Ms Dodds had “done the right thing”.

He posted on X: “Labour’s disgraceful and cynical actions demean the Labour Party’s reputation as they balance the books on the backs of the poorest people in the world. Shame on them and kudos to a politician of decency and principle.”

Resignation of Dodds shows Starmer’s ruthless side

Liz Bates

Political correspondent

@wizbates

She was one of his closest allies, but today Anneliese Dodds has quit Keir Starmer’s government with a stark warning about the direction of travel.

It’s been quite a journey since she got the top job in his opposition cabinet.

When he took over as Labour leader, she was appointed shadow chancellor and seen as a key player in his team.

Since that time, Starmer has shown himself to be a pragmatic, sometimes ruthless, operator when it comes to both policy and political friendships.

This resignation once again shows that side.

Not only is he pushing through deep cuts to foreign aid – a move he previously condemned – but in doing so, he has also cast aside one of his most loyal and long-standing colleagues.

Former Tory defence minister Tobias Ellwood also praised the decision as “courageous and principled”, saying that national security is “not just about hard power” but tackling threats like disease and extremism.

However, Conservative leader Kemi Badenoch backed Sir Keir’s decision.

She said: “I disagree with the PM on many things BUT on reducing the foreign aid budget to fund UK defence? He’s absolutely right.

“He may not be able to convince the ministers in his own cabinet, but on this subject, I will back him.

“National interest always comes first.”

Sir Keir announced the decision to cut the aid budget on Tuesday, saying it would fund and increase defence spending from 2.3% of GDP to 2.5% in 2027. Labour’s manifesto had pledged to reach this target but it was not clear when that would be achieved or how it would be funded.

The prime minister admitted the inauguration of Mr Trump – who has made clear he no longer wants to bankroll NATO’s defence- “accelerated” his decision but said it had been three years in the making, after Russia’s invasion of Ukraine.

He said the reduction in foreign aid is “not a renouncement I’m happy to make”.

Asked about it during the Convention of the North conference, deputy prime minister Angela Rayner said: “I’m sorry to hear she’s resigned, it was a really difficult decision that was made.”

However, she said it was “absolutely right” that the cabinet endorse the prime minister’s actions to spend more money on defence.

Environment

Tesla partners with Steak ‘n Shake on Superchargers with up to more than 100 locations

Published

3 hours ago

February 28, 2025

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Tesla partners with Steak 'n Shake on Superchargers with up to more than 100 locations

EV-battery-prices-plummeting — (Source: Tesla)

Tesla has partnered with Steak ‘n Shake to deploy Superchargers at up to more than 100 restaurant locations.

The partnership between Tesla and the American fast food chain has been revealed through a strange series of posts on X.

First, Tesla CEO Elon Musk commented on Steak ‘n Shake’s announcement that it is switching from using seed oils to beef tallow.

The restaurant responded by proposing “Tesla charging stations at Steak n Shake”, but they apparently didn’t know that it was already happening as Tesla responded that they had already signed on 6 sites and they have over 20 more in review:

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The Steak n Shake account responded by suggesting that the partnership extend to over 100 locations:

Thank you Tesla Charging! Let’s do over 100 locations. Consider all sites approved!

The chain operates over 400 locations around the world – many of them in the midwest. A lot of these locations are located near highways, where Tesla prefers to deploy charging stations.

It’s not the first time that Tesla has partnered with a restaurant for multiple Supercharger locations. It also has a deal with Ruby Tuesday.

Tesla is currently deploying its latest V4 Superchargers capable of 500 kW – with the first stations expected to come online in the US later this year.

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Environment

Volkswagen ID.4 was the best-selling EV in Europe, top 3 in the US last month

Published

3 hours ago

February 28, 2025

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Volkswagen ID.4 was the best-selling EV in Europe, top 3 in the US last month

Volkswagen’s electric SUV is making a comeback. Last month, the Volkswagen ID.4 topped Tesla’s Model Y to become the best-selling EV in Europe, and it was even in the top three in the US.

Volkswagen ID.4 was EU’s best-selling EV, top 3 in the US

Although new vehicle registrations fell 2% in Europe last month, electric vehicles were a bright spot, with BEV sales up 37% from the year prior.

According to JATO Dynamics, 165,473 EVs were registered in Europe in January. The Volkswagen ID.4 took the top spot after registrations surged 195% to 7,177, overtaking the Tesla Model Y.

Tesla Model Y registrations plunged 46% in Europe last month to 6,155. The Model 3 refresh, which was launched in late 2023, had a 44% decline in registrations. Overall, Tesla registered only 9,913 vehicles in January 2025, a 45% decline from last year.

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While the arrival of the new Model Y plays a role, backlash against Elon Musk’s increasingly outspoken political antics is also causing widespread hate among owners in the US and Europe.

Felipe Munoz, Global Analyst at JATO said the solid performance of EVs is “particularly impressive given the significant dip in sales that Tesla experienced” in January.

He explained, “it’s not unusual for sales to drop just before a new generation or an updated model is introduced to the market.”

Tesla-EV-registrations-Europe-January — Tesla vehicle registrations in Europe in January (Source: JATO Dynamics)

Although sales are expected to pick up again, Munoz added, “The performance of both the Model 3 and Model Y is an indication of the declining popularity of Tesla in Europe overall.”

Volkswagen is taking advantage with the ID.4 taking the top spot, and the ID.7 placing third with 5,879 registrations, up 657% from January 2024.

Kia’s mass-market EV3h launched in late 2024, took fourth with 5,792, while the Skoda Enyaq rounded out the top five.

Chinese automakers, like BYD and MG, are starting to gain some real traction in Europe. With 37,134 vehicles registered last month, up 52% from January 2024, Chinese brands accounted for 3.7% of the market. That’s up from the 2.4% market share in January 2024.

Chinese-brands-market-share-Europe — Chinese auto brands market share in Europe (Source: JATO Dynamics)

Although still a relatively small number, combined, it would put them ahead of Ford, which registered 35,790 vehicles in Europe last month.

Electrek’s Take

The ID.4 appears to be making a comeback. After it went back on sale early last month, Volkswagen’s ID.4 was already the third best-selling EV in the US in January behind Tesla’s Model Y and Model 3.

Despite its success in Europe and the US, Volkswagen, like most global OEMs, is struggling in China. VW’s Chinese joint venture with SAIC cut the price of the ID.4 X, its version of the electric SUV sold in China, to under $20,000 (139,900 yuan) this week.

With leases starting as low as $189 per month in the US, it’s no wonder the ID.4 is already a top seller. If you’re ready to check it out for yourself, you can use our link to find deals on the Volkswagen ID.4 in your area.

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