Powell says more ‘restriction’ is coming, including possibility of hikes at consecutive meetings

Federal Reserve Chairman Jerome Powell talked tough on inflation Wednesday, saying at a forum that he expects multiple interest rate increases ahead and possibly at an aggressive pace.

“We believe there’s more restriction coming,” Powell said during a monetary policy session in Sintra, Portugal. “What’s really driving it … is a very strong labor market.”

The comments reiterate a position taken by Powell’s fellow policymakers at their June meeting, during which they indicated the likelihood of another half percentage point of increases through the end of 2023.

Assuming a quarter point per meeting, that would mean two more hikes. Previous comments from Powell pointed to a possibility of the rises coming at alternate meetings, though he said Wednesday that might not be the case depending on how the data come in.

The Fed hiked at each meeting since March 2022, a span that included four straight three-quarter point moves, before taking a break in June.

“I wouldn’t take, you know, moving at consecutive meetings off the table,” he said during an exchange moderated by CNBC’s Sara Eisen. The question-and-answer session took place at a forum sponsored by the European Central Bank.

Markets took a modest hit as Powell spoke, with the Dow Jones Industrial Average off more than 120 points.

Central to the Fed’s current thinking is the belief that the 10 straight rate hikes haven’t had time to work their way through the economy. Therefore, officials can’t be sure whether policy meets the “sufficiently restrictive” standard to bring inflation down to the Fed’s 2% target.

Most economists think the rate increases ultimately will pull the U.S. into at least a shallow recession.

“There’s a significant possibility that there will be a downturn,” Powell said, adding that it’s not “the most likely case, but it’s certainly possible.”

Asked about banking stresses, Powell said the issues in March that led to the closure of Silicon Valley Bank and two other institutions did weigh into this thinking at the last meeting.

Though Powell repeatedly has stressed that he considers the general state of the U.S. banking industry to be solid, he said the Fed needs to be mindful that there could be some issues with credit availability. Recent surveys have shown a general tightening in standards and declining demand for loans.

“Bank credit availability and credit can move down a little bit with a bit of a lag. So we’re watching carefully to see whether that does appear,” he said.

Powell’s fellow central bankers at the forum also spoke forcefully about needing to control inflation.

ECB President Christine Lagarde said she feels “we still have ground to cover” and thinks “we will very likely hike again in July.” Bank of Japan Governor Kazuo Ueda said his institution could tighten its ultra-loose policy if inflation doesn’t ease up, while Bank of England Governor Andrew Bailey stressed the importance of bringing down prices and said he wouldn’t consider raising the 2% inflation target.

“It’s going to take some time. Inflation has proven to be more persistent than we expected and not less,” Powell said. “Of course, if that day comes when that turns around, that’ll be great. But we don’t expect that.”