Powell said that the time for restrictive interest rates is not long enough to achieve the inflation target, and does not rule out raising rates in July and September.

The resilience of the US economy seems to have strengthened Federal Reserve Chairman Powell's determination to raise interest rates. He reiterated on Wednesday that there will be more tightening policies this year. Powell did not rule out the possibility of consecutive rate hikes at the Fed's meetings in July and September to curb persistent price pressures and cool down the unexpectedly strong US labor market.

On June 28, the heads of the four major central banks of the United States, the United Kingdom, Europe, and Japan appeared together at the central bank forum held by the European Central Bank.

Powell emphasized that the Fed may raise rates again as early as next month because strong labor demand is supporting higher consumer spending, which could sustain demand. "The labor market is indeed driving the economy. In the past few months, we have seen stronger-than-expected economic growth, tighter-than-expected labor market, and higher-than-expected inflation."

The Fed raised rates by at least 50 basis points in the last six policy meetings last year, and the rate hikes slowed to 25 basis points in the first three meetings this year. Powell said that the decision not to raise rates in June was just a continuation of the Fed's pace of rate hikes. Slowing down the pace of rate hikes indicates that the Fed is trying to gather more information from the data and observe the effectiveness of tightening policies.

When asked whether Powell expects rate hikes to occur every other meeting after skipping a hike this month, he said it could happen or it might not happen, and he did not rule out the possibility of consecutive rate hikes at two meetings. He reiterated that most Fed policymakers' projections indicate that they expect at least two more rate hikes this year.

Media analysis suggests that Powell's remarks indicate that the Fed is likely to raise rates in July and September.

Powell pointed out that due to the rapid pace of rate hikes by the Fed last year, there was not enough time to see the impact of rate hikes on economic activity slowdown and inflation. Although monetary policy is restrictive, it may not be restrictive enough, and the restrictive period may not be long enough.

A series of data released on Tuesday showed that the US economy performed better than expected. New home sales rose at the fastest pace in over a year, durable goods orders exceeded expectations, and consumer confidence reached its highest level since early 2022.

Powell stated that the above data indicate resilience and growth in the economy. Although the possibility of an economic recession in the United States is significant, he does not believe that an economic recession is the most likely outcome.

Powell pointed out that the situation of supply chain disruptions is improving, and the overall inflation rate is declining, which helps stabilize inflation expectations. However, certain categories of inflation, especially in the services sector, have not shown significant progress.

Powell expects core inflation (excluding food and energy) to fall back to the Fed's 2% target by 2025, and not before then. "If inflation were to drop significantly and we were confident that the inflation rate would reach 2%, then the situation would be different. We would start considering easing policies. But we still have a long way to go to reach this goal. It is not something we are considering now or in the near future."

Analysis suggests that Powell's assessment of core inflation indicates that policymakers will maintain high interest rates for a longer period than investors currently expect. Federal Reserve Chairman Powell also stated that since March, US banking institutions have been collapsing one after another, and the Fed needs to learn from them. Overall, the US banking system is strong and resilient. The large banks are powerful and well-capitalized. Changes are needed to preserve the business model of small banks.

At this month's FOMC meeting, the Fed paused its rate hikes as expected but remained hawkish, indicating that there will be two more hikes. The Fed stated that pausing the rate hikes allows them to assess future information and its impact. The dot plot shows that two-thirds of Fed officials expect rates to be above 5.5% this year, implying at least two 25 basis point hikes. Fed officials raised the median expectation for the peak rate by 50 basis points to 5.6%, increased the GDP growth forecast for this year by more than double to 1%, lowered the unemployment rate forecast for this year, and raised the core PCE inflation forecast.

After Powell discussed the prospect of Fed rate hikes, the S&P 500 index briefly fell 0.4%, hitting a daily low. Subsequently, US stocks rebounded, with the S&P 500 briefly turning positive before falling again.

Following Powell's speech, the market increased its bets on further Fed rate hikes this year. Most economists predict a 25 basis point hike in July, raising their expectations for the Fed policy rate at the end of this year to 5.375% and at the end of next year to 4.375%.

The "Fed Watch Tool" from the CME Group shows that the current probability in the federal funds rate futures market for a 25 basis point hike in July is about 77%. Assuming a 25 basis point hike each time, the probability of at least two more hikes by the end of this year is less than 23%. However, in the post-meeting statement released this month, most Fed officials indicated that they expect two more rate hikes this year.

Nick Timiraos, a journalist from The Wall Street Journal known as the "New Fed News Agency," wrote that Powell stated that the time for rate constraints is not long enough to achieve the inflation target. After a year of rapid rate hikes, Fed officials are uncertain about the magnitude and pace of future hikes. They believe that the past rate hikes, combined with the recent pressures faced by the banking industry, will ultimately lead to a greater-than-expected economic slowdown. They are trying to balance this risk with the risk of the economy being more resilient than expected and inflation remaining too high, which would require them to raise rates.