Rates not 'restrictive enough' even after 425 bps worth of hikes this year, says Fed Chair Powell

(Kitco News) As the Federal Reserve transitions to smaller individual rate hikes, the U.S. central bank Chair Jerome Powell said it is more important to pay attention to the peak rate and how long the Fed chooses to remain restrictive.

And the median forecast for next year shows that rates could go up to 5.1%, with Powell saying that they will stay there "for some time."

"Now that we're coming to the end of this year, we've raised 425 basis points this year, and we're into restrictive territory. It's now not so important how fast we go. It's far more important to think what is the ultimate level. And then, at a certain point, the question will become, how long do we remain restrictive? That will become the most important question," Powell said. "Now that we're coming to the end of this year, we've raised 425 basis points this year, and we're into restrictive territory. It's now not so important how fast we go. It's far more important to think what is the ultimate level. And then, at a certain point, the question will become, how long do we remain restrictive? That will become the most important question," Powell said.

Powell spoke to reporters after the Fed raised rates by 50 bps, which is smaller than the previous 75 bps increases.

Powell clarified that the decision in February would be based on incoming data and financial conditions. But he urged that rates are not high enough yet.

"We're not at a restrictive enough stance even with today's move … We'll get to that point, and then the question will be, how long do we stay there? And there is the strong view on the committee that we'll need to stay there until we're really confident that inflation is coming down in a sustained way, and we think that that will be some time."

Commenting on the latest better-than-expected inflation report from November, Powell said that he remains "realistic about the broader project," adding that it is still a long way to go to get to price stability.

On the possibility of a soft landing, Powell noted that to the extent the Fed needs to keep rates higher for longer, "that narrows the runway." But if lower inflation readings keep on coming, a soft landing could be possible. "I don't think anyone knows whether we're going to have a recession or not. And if we do, whether it's going to be a deep one or not, it's just not knowable," he said.

The Chair of the Federal Reserve also reiterated that the full effects of rapid tightening are yet to be felt. Powell added that changing the Fed's 2% inflation target is not an option. "We're not going to consider that under any circumstances. We're going to keep our inflation target at 2%. We're going to use our tools to get inflation back to 2%," he said.

Gold’s reaction to a more hawkish Powell was largely subdued. February Comex gold futures were last trading at $1,819, down 0.36% on the day.