“Our decision at the September meeting will depend on the totality of the incoming data and the evolving outlook,” he said.

Two-year Treasury yields. rose as investors digested the remarks, pushed as high as 3.44% while the 2- to 10-year yield curve resumed its flattening. Equities were lower.

Prior to Powell’s speech, investors saw the odds of a half-point or another three-quarter point hike at the Fed’s Sept. 20-21 gathering as roughly even. They remained in that vicinity after he spoke, but the amount of reductions in fed rates priced for 2023 briefly retreated.

Mark Spindel, chief investment officer at MBB Capital Partners, said the resolute tone of Powell’s speech points to another large rate rise next month.

“Failure to back that up with another 75 basis point increase would cheapen his talk,” Spindel said, noting that Powell took pains to quote former chairs Alan Greenspan, Paul Volcker and Ben Bernanke, invoking the Fed’s Hall of Fame to bolster his message.

Forceful Action

“Restoring price stability will take some time and requires using our tools forcefully to bring demand and supply into better balance,” Powell said in remarks that were set to be live-streamed for the first time from inside the lodge where the event has been held since 1982.

Other Fed speakers in recent days have also pushed back against expectations that the Fed would raise rapidly to a restrictive policy stance and then begin to ease.

Restoring price stability will require a “sustained” period of below-trend growth and a weaker labor market, Powell said. “While higher interest rates, slower growth, and softer labor market conditions will bring down inflation, they will also bring some pain to households and businesses,” he said.

What Bloomberg Economics Says

“Powell delivered a concise but clear message: that the Fed is ready to hold rates tighter for longer. Whether the Fed will repeat the mistakes of the 1970s — the lessons he explained omitted one important one — the importance of having accurate assessment of the economy’s potential growth.”

— Anna Wong, chief US economist

Powell’s remarks at the retreat, which gathers top policy makers from around the world, come as US central bankers confront the highest inflation in 40 years. Officials were slow to spot the risk and are now moving aggressively to keep prices from accelerating further. Officials raised rates by 75 basis points at their last two meetings and signaled the same could be on the table again when they gather next month.

Critics have slammed the Fed for failing to anticipate the inflationary surge, which the Fed initially viewed as transitory. Powell told the conference in his address a year ago that price pressures were limited to a relatively narrow group of goods and services. But within months it was spreading and by the time the Fed began raising rates from near zero inflation was already three times their 2% target.

It remains elevated: While the Fed’s preferred measure of inflation eased to 6.3% for the 12-month period ending July, wages and salaries had the biggest monthly gain since February, according to a government report released earlier on Friday.

“While the lower inflation readings for July are welcome, a single month’s improvement falls far short of what the committee will need to see before we are confident that inflation is moving down,” the Fed chief told the audience, gathered in person after two years of holding the conference virtually because of the pandemic.

“We are moving our policy stance purposefully to a level that will be sufficiently restrictive to return inflation to 2%.”

Fed officials in June projected rates rising to 3.4% by the end of this year, according to their median estimate, and 3.8% by end 2023. They will update those forecasts in September — a fact that Powell took the trouble to remind his audience of in his remarks. Investors were pricing in the probability of cuts in the back half of 2023, though Fed officials are starting to push back against that view.

Looking beyond the current rate-hike cycle, policy makers are trying to assess whether longer-run inflation pressures will remain persistent. Supply chain costs may be shifting higher, and the supply of US labor could remain tight for years to come due to an aging population and limited immigration.

Powell said the labor market is “clearly out of balance” with demand for workers “substantially” exceeding supply.

US unemployment rate matched a five-decade low of 3.5% in July with payrolls fully recovering to pre-pandemic levels.

Ahead of Powell’s speech, several Fed officials emphasized the central bank is in no way done, with Kansas City Fed chief Esther George noting that the destination of the federal funds rate may be higher than markets are currently priced for.

“We have to get interest rates higher to slow down demand and bring inflation back to our target,” said George, who votes on monetary policy this year.

Financial markets have the benchmark lending rate peaking under 4% early next year.

Asked how high the Fed should push borrowing costs, George said there was “more room to go” and pushed back against bets in financial markets the central bank would begin cutting rates next year.

“I think we will have to hold — it could be over 4%. I don’t think that’s out of the question,” she said in a Bloomberg Television interview. “You won’t know that, I think, until you begin to watch the data signs.”