Fed Chair Powell says smaller interest rate hikes could start in December

cnbc.com:

WASHINGTON – Federal Reserve Chairman Jerome Powell confirmed Wednesday that smaller interest rate increases are likely ahead even as he sees progress in the fight against inflation as largely inadequate.

Echoing recent statements from other central bank officials and comments at the November Fed meeting, Powell said he sees the central bank in position to reduce the size of rate hikes as soon as next month.

But he cautioned that monetary policy is likely to stay restrictive for some time until real signs of progress emerge on inflation.

«Despite some promising developments, we have a long way to go in restoring price stability,» Powell said in remarks delivered at the Brookings Institution.

The chairman noted that policy moves such as interest rate increases and the reduction of the Fed's bond holdings generally take time to make their way through the system.

«Thus, 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 added. «The time for moderating the pace of rate increases may come as soon as the December meeting.»

Markets already had been pricing in about a 65% chance that the Fed would step down its interest rate increases to half of a percentage point in December, following four successive 0.75-point moves, according to CME Group data. That pace of rate hikes is the most aggressive since the early 1980s.

What remains to be seen is where the Fed goes from there. With markets pricing in the likelihood of rate cuts later in 2023, Powell instead warned that restrictive policy will stay in place until inflation shows more consistent signs of receding.

«Given our progress in tightening policy, the timing of that moderation