Jerome Powell has indicated that the Federal Reserve could raise US interest rates further amid concerns that inflation is not yet fully under control.
The central bank’s chairman said on Friday it was too soon to begin discussing interest rate cuts, despite increasing bets by market traders that the Fed could begin easing monetary policy as soon as March.
He said: “It would be premature to conclude with confidence that we have achieved a sufficiently restrictive stance, or to speculate on when policy might ease.
“We are prepared to tighten policy further if it becomes appropriate to do so.”
His comments follow similar warnings from the Bank of England, with Governor Andrew Bailey saying this week that the outlook for the UK economy was among the worst he had ever seen.
Mr Bailey said on Wednesday it was too soon to talk about the prospect of reducing rates from 5.25pc, a 15-year high, as inflation remains stubborn at 4.8pc.
Inflation in the US has fallen to 3pc, approaching the Fed’s goal of 2pc.
However Mr Powell said core inflation, which strips out the volatile components of energy and food, is still at 3.5pc, which is “well above our 2pc objective”.
Traders appeared to shrug off Mr Powell’s comments, with money markets increasing bets that rates will be cut in March. This sent shares up further, with the S&P 500 rising by more than half a percent.
Expectations of earlier rate cuts also hit the dollar, falling by more than one cent against the pound this week to $1.271. This has contributed to a rise in gold, which hit a new record high of more than $2,075 per troy ounce, because the metal is priced in dollars and so rises when the currency weakens.
Mr Powell may have added to traders’ optimism by raising the possibility of a so-called soft landing, in which the Fed can get inflation back to the target without causing a recession.
He said: “If you look at the history of campaigns to bring down high inflation… in many instances that has resulted in significant job losses necessary to restore price stability. We have not seen that here. We have always felt that there is a path to getting inflation back down to 2pc without that kind of large job loss. We are on that path.
“The US economy has really been the star performer in the world since Covid. We’ve had higher growth, we’ve had a stronger labour market, we have had inflation coming down now as fast or faster than most other economies. So basically compared to other countries we have done well.”
It came as data showed Britain’s inflation rate is higher than thought after the Office for National Statistics said it had underestimated rent increases.
The ONS said rents have actually risen by 8.4pc in the year to October and not 6.1pc, which was already by far the fastest rise since at least 2016.
It means consumer prices grew by 4.8pc rather than 4.6pc in October when using the new method, although the ONS said it has not officially uprated the numbers.
It is a fresh setback for Rishi Sunak, who is trying to drum up investment to improve the outlook ahead of the general election.
Chancellor Jeremy Hunt said earlier this year he would only call an election when inflation had fallen below 3pc, according to a recording obtained by The Times.
The latest hint that inflation may be painfully persistent came from manufacturers.
Factory bosses are ramping up prices even as the costs of their raw materials are falling to claw back margins, according to a survey from S&P Global Market Intelligence.
A wide range of raw materials that soared in price during the energy crisis are now becoming cheaper such as chemicals, metals and packaging.
Manufacturers are also paying less for things like plastics, pulp and timber while facing lower energy bills. But the businesses are raising their prices nonetheless.
The survey will be of concern to rate-setters at the Bank of England who have long warned of so-called second-round effects from the energy shock that can keep inflation elevated.