Federal Reserve Chair Jerome Powell said he's "not confident" the Fed has done enough to curb inflation, suggesting that further rate hikes might be necessary, during a speech at an International Monetary Fund event in Washington, D.C. on Thursday.
Powell reaffirmed the central bank's commitment to bringing inflation down to its benchmark target of 2%. The year-over-year inflation rate is currently 3.7%, per the most recent consumer index report.
But it's not yet clear whether the Fed's monetary policy has been "sufficiently restrictive," said Powell.
To reduce inflation, the Fed has been trying to slow the economy through a series of benchmark interest rate hikes that are meant to discourage spending. It last raised the federal funds rate — which affects how much interest you pay on loans and credit cards — by 0.25 percentage point in July.
Big picture, the federal funds rate has risen from near-zero in March 2022 to a current range of 5.25% to 5.5%, the highest rate in more than 22 years.
So, what will happen next?
"If it becomes appropriate to tighten policy further, we will not hesitate to do so," Powell said.
Are more interest rate hikes are expected?
Despite Powell's cautionary tone during Thursday's speech, the central bank has recently pressed the pause button on further hikes, declining to increase the federal funds rate during the last two Federal Open Market Committee meetings in September and October.
The Fed's own projections in September suggested another 0.25 percentage point hike before the end of 2023. However, during a press conference on Nov. 1, Powell said those projections were a snapshot at a particular time, and "not a promise or a plan of the future."
The probability of another rate hike increase before 2024 is now 14.5%, according to the CME FedWatch Tool, a real-time tracker that measures rate hike probabilities. The tracker indicates a 85.5% probability that rates will not increase during that time.
Experts also agree that another rate hike doesn't seem likely, unless inflation remains high.
"It's more likely that the Fed is done raising interest rates because the inflation rate is coming down, the labor market isn't as tight, and the economy is expected to slow," Greg McBride, chief financial analyst at Bankrate, tells CNBC Make It.
"The Fed isn't ready to have a victory parade over inflation just yet — they're likely keeping their options open," says Ryan Detrick, chief market strategist at financial services firm Carson Group. "But we continue to think they're done hiking."
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