Fed Chair Powell says rate hikes at consecutive meetings are not off the table and recession is 'not the most likely case'

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(Kitco News) Raising rates at consecutive monetary policy meetings is not off the table after no move in June, said Federal Reserve Chair Jerome Powell, while ruling out a recession as the most likely outcome.

Powell's tone at the ECB forum on Central Banking 2023 remained hawkish as he maintained that the median dot plot sees at least two more 25-bps rate hikes this year, and consecutive rate hikes are not being ruled out.

This comes after the Fed kept rates unchanged - in a range of 5% to 5.25% - for the first time in fifteen months at the June meeting. Prior to this, the Fed has raised its rate by 500 basis points in a little more than a year.

"The only thing we decided was not to raise rates at the June meeting," Powell said during a panel in Sintra, Portugal. "I wouldn't take moving at consecutive meetings off the table at all."

Powell defended the Fed's move to hold rates steady in June to see more time pass between each rate decision and evaluate how much more tightening would be appropriate to get inflation back down to 2%.

"There's more tightening power coming through," Powell said. "Policy hasn't been restrictive for very long. We started that at negative real interest rates, and we've now moved up to where we actually are in restrictive territory, but we haven't been there very long. We believe there is more restriction coming."

Plus, the Fed is watching how much more credit tightening will come through following the bank stress seen in March. "Part of the decision not to raise rates in June was the bank stress we experienced earlier this year. When something like this happens, credit availability can move down with a lag," Powell said.

Two or more rate hikes are needed mainly due to a strong labor market that is pulling the economy. Powell explained that the data over the last quarter showed robust growth, a tight labor market, and higher-than-expected inflation. “That tells us that policy may not be restrictive enough and has not been restrictive for long enough,” he said.

Powell added that the key is to figure out how much more restraint is coming through the pipeline from the rate hikes the Fed introduced 6-9 months ago.

He also remained optimistic about avoiding a recession since the U.S. economy has been resilient and current data is still consistent with an economy still growing.

“There seems to be a path for the labor market to soften without large job losses that happened in prior cycles,” he said. “Recession is not the most likely case.”

Other speakers on the panel were European Central Bank President Christine Lagarde, Bank of England Governor Andrew Bailey, and Bank of Japan Governor Kazuo Ueda.

From the ECB perspective, Lagarde said that the central bank covered a lot of ground when it raised rates by 400 basis points in less than a year, but more work must be done. "If our baseline stands, we will very likely hike again in July," she said Wednesday.

The gold market did not have a major new reaction to the central bankers’ comments as it continued to trade under pressure and touched 3.5-month lows, with hawkish rhetoric weighing on the precious metal. August Comex gold futures were last trading at $1,919.20 an ounce, down 0.24% on the day.