The Federal Reserve has raised interest rates by a quarter of a percentage point and Fed Chair Jerome Powell says the US economy still needed to slow and the labour market to weaken for inflation to "credibly" return to the central bank's two per cent target.
The hike, the Fed's 11th in its last 12 meetings, set the benchmark overnight interest rate in the 5.25 per cent-5.50 per cent range, a level last seen just prior to the 2007 housing market crash and which has not been consistently exceeded for about 22 years.
"The (Federal Open Market) Committee will continue to assess additional information and its implications for monetary policy," the Fed said in language that was little changed from its June 14 statement and which left the central bank's policy options open as it searches for a stopping point to the current tightening cycle.
Powell made no promises either way, with a September meeting eight weeks from now considered "live" for another rate increase, though a continued slowing of inflation and weaker economic data may also prompt policymakers to pause.
In a press conference following the Fed's latest policy move, the Fed chief said the central bank was very much looking at "the totality" of incoming data, and particularly studying it for signs that the economy is heading for a period of "below-trend" growth.
Key price measures are still increasing at more than double the Fed's target. While inflation has been easing, that has so far happened with little apparent cost to the labour market, where the unemployment rate remains at a low 3.6 per cent. Economic growth has remained above the Fed's estimated 1.8 per cent trend rate.
Powell acknowledged as a positive development that inflation has fallen from the highs of last year without serious damage to the economy.
But as the Fed enters a tricky period in its inflation fight, balancing the need for further rate increases against the risks of going too far, he said finishing the task on inflation will likely require some economic losses.
"My base case is that we will be able to achieve inflation moving back down to our target without a really significant downturn that results in high levels of job losses," Powell said.
"But it's a long way to be sure and we have a lot left ... Reducing inflation is likely to require a period of below-trend growth and some softening of labour market conditions."
As stated after its meeting last month, the Fed said it would watch incoming data and study the impact of its rate hikes on the economy "in determining the extent of additional policy firming that may be appropriate" to reach its inflation target.
Powell said decisions would continue to be made on a meeting-by-meeting basis and that officials can only provide limited guidance about what's next for monetary policy in the current environment.
"It is certainly possible that we would raise the (federal) funds rate again at the September meeting if the data warranted, and I would also say it's possible that we would choose to hold steady at that meeting" if that was the right policy call, he said.
He cautioned, however, against expecting any near-term easing in rates.
"We'll be comfortable cutting rates when we're comfortable cutting rates, and that won't be this year," Powell said.
