Powell speech: We continue to see upside risks to inflation

The Fed continues to see upside risks to inflation, Fed Chair Jerome Powell noted in the opening statement of his post-Fed meeting press conference. Supply chain constraints have been longer than anticipated and price pressures have broadened, with Covid-19 disruptions in China likely to make things worse ahead. 

The Fed is highly attentive to the risks of high inflation and is strongly committed to bringing it down, Powell continued, noting that the Fed's policy will continue to be adaptive ahead. Since the Fed's May meeting, inflation has surprised to the upside, he continued, with indicators of inflation expectations also rising. As a result, the Fed decided a larger interest rate hike was warranted, Powell stated. 

This continues the approach of expeditiously raising interest rates and will help to ensure longer-term inflation expectations remain well anchored, Powell explained. The Fed's projections are not a plan, as no one knows with any certainty where the economy will be in one year's time, Powell remarked. 

Nonetheless, the Fed will in the coming months be looking for compelling evidence that inflation is coming down and the pace of rate hikes will depend on this incoming data, Powell said, noting that he does not expect moves of 75 bps to be common. At the Fed's next meeting, a 50 or 75 bps rate hike is likely, he noted, saying that the Fed needs to be nimble given that there could be further surprises in store for inflation.