Fed’s hawkish shift signals that tightening cycle may not be over yet

Fed Chairman Powell surprised markets by his latest remarks, which showed renewed hawkishness in the central bank’s stance on interest rates, after recent initial signals that the Fed is likely done with tightening its monetary policy.

In his speech on Thursday, Powell said that the policymakers are still not sure whether the current level of interest rates is sufficient to end the fight with inflation and bring it to 2% target over time.

Comments from other FOMC members pointed to still high economic uncertainty and suggest that it would be unwise to say that further rate hikes are off the table, which added to fresh hawkishness.

The Fed remains committed to achieving its target to restore price stability, although it is likely going to be a long way, as strong economic growth fuels inflation, implying that the central bank should stay alerted and raise interest rates further if necessary, but not to slow economic growth by too high borrowing cost.

The Federal Reserve stayed on hold in its latest policy meeting, keeping interest rates unchanged at 5.25%-5.5%, signaling that further actions will be highly dependent on economic data, with the latest comments from Powell and other Fed officials, suggesting that the central bank left the door open for possible further hikes.