Powell Expresses Uncertainty About Inflation, Highlights Need for Broader Economic Forecasting, Signals Fed's Readiness to Tighten Policy Amid Concerns Over Bond Yield Surge

Federal Reserve Chair Jerome Powell, in a meeting with an IMF audience, emphasized the need for the central bank to consider factors beyond traditional economic models in forecasting the economy. He highlighted the unpredictability of the economy, referencing global financial crises and pandemics as examples of shocks that require thinking beyond the models. Powell expressed gratification by the progress on inflation but also communicated his uncertainty about achieving a sufficiently restrictive stance on inflation. He anticipates more disinflation on goods and believes the labor market is moving into better balance. Powell expressed concern about the recent surge in bond yields and the Fed's ongoing efforts to judge if more needs to be done. He also remarked that the US economy has been stronger than expected this year and reiterated the Fed's readiness to raise interest rates further if necessary. St. Louis Fed interim president Kathleen O’Neill Paese suggested policymakers should be prepared for further rate hikes if progress on inflation slows.