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Powell acknowledges disinflation again, but sees more hikes in long inflation war

February 7, 2023 1:29 PM EST

By Yasin Ebrahim -- Federal Reserve Chairman Jerome Powell on Wednesday, repeated that inflation was slowing, though reiterated the need for further hikes as the mission to bring inflation down to the central bank's target still has a long way to go amid a red-hot labor market.

"We didn't expect [the January jobs report] to be this strong, but it shows you why we think that this will be a process [to bring down inflation] that takes a significant period of time because the labor markets are extraordinarily strong," Powell said Wednesday to the Economic Club of Washington, reiterating the need for ongoing rate hikes.

The Fed is trying to "achieve a single policy that is sufficiently restrictive, to bring inflation down to 2% over time and we don't think we've achieved that yet," Powell added.

The fed chief, however, said that it was "good" that inflation is starting to come down and it wasn't at the cost of a strong labor market.

Last week's red-hot jobs report showed the economy created 517,000 new jobs in January, but the unemployment rate dropped to a more than four-decade low.

Still, the strength of the labor market has forced investors to price in the prospect of a more hawkish Fed. Last week's jobs data including revisions suggest that an "acceleration in rate hikes cannot be ruled out," IMorgan Stanley after ditching its bet on a Fed pause starting in March.

Expectations for a March hike is nearing fully priced in, while the odds of a May rate hike jumped to 69% from 38% last week, according to Investing.corn's {{frJIIFed Rate Monitor Tool}}.

Two further rate increases would take the Fed funds rate to a range of 5% to 5.25%, or 5.1% at the midpoint, in-line with Fed's December projections.

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Morgan Stanley, Jerome Powell