Jerome H. Powell, the chair of the Federal Reserve, reiterated the central Financial institution’s dedication to shifting ahead “fastidiously” with additional price strikes in a speech on Thursday. However he additionally mentioned that the central financial institution may want to lift rates of interest extra if financial knowledge continued to return in sizzling.

Mr. Powell tried to color a balanced image of the problem going through the Fed in remarks earlier than the Financial Membership of New York. He emphasised that the Fed is attempting to weigh two targets towards each other: It needs to wrestle inflation absolutely underneath management, but it surely additionally needs to keep away from doing an excessive amount of and unnecessarily hurting the financial system.

But it is a sophisticated second for the central financial institution because the financial system behaves in shocking methods. Officers have quickly raised rates of interest to a spread of 5.25 to five.5 p.c over the previous 19 months. Policymakers at the moment are debating whether or not they should elevate charges another time in 2023.

The upper borrowing prices are speculated to overwhelm financial exercise — slowing house shopping for, enterprise expansions and demand of all types — to be able to cool inflation. However to date, progress has been unexpectedly resilient. Shoppers are spending. Firms are hiring. And whereas wage features are moderating, total progress has been sturdy sufficient to make some economists query whether or not the financial system is slowing sufficiently to drive inflation again to the Fed’s 2 p.c objective.

“We’re attentive to current knowledge displaying the resilience of financial progress and demand for labor,” Mr. Powell acknowledged on Thursday. “Further proof of persistently above-trend progress, or that tightness within the labor market is not easing, might put additional progress on inflation in danger and will warrant additional tightening of financial coverage.”

Mr. Powell known as current progress knowledge a “shock,” and mentioned that it had come as shopper demand held up rather more strongly than had been anticipated.

“It could simply be that charges haven’t been excessive sufficient for lengthy sufficient,” he mentioned, later including that “the proof just isn’t that coverage is simply too tight proper now.”

Economists interpreted his remarks to imply that whereas the Fed is unlikely to lift rates of interest at its upcoming assembly, which concludes on Nov. 1, it was leaving the door open to a possible price improve after that. The Fed’s last assembly of the 12 months concludes on Dec. 13.

“It didn’t sound like he was anxious to lift charges once more in November,” mentioned Michael Feroli, chief U.S. economist at J.P. Morgan, explaining that he thinks the Fed will rely on knowledge because it decides what to do in December.

“He undoubtedly didn’t shut the door to additional price hikes,” Mr. Feroli mentioned. “However he didn’t sign something was imminent, both.”

Kathy Bostjancic, chief economist for Nationwide Mutual, mentioned the feedback had been “balanced, as a result of there’s a lot uncertainty.”

The Fed chair had causes to maintain his choices open. Whereas progress has been sturdy in current knowledge, the financial system may very well be poised for a extra marked slowdown.

The Fed has already raised short-term rates of interest so much, and people strikes “could” nonetheless be trickling out to decelerate the financial system, Mr. Powell famous. And importantly, long-term rates of interest in markets have jumped larger over the previous two months, making it rather more costly to borrow to purchase a home or a automobile.

These more durable monetary circumstances might have an effect on progress, Mr. Powell mentioned.

“Monetary circumstances have tightened considerably in current months, and longer-term bond yields have been an vital driving issue on this tightening,” he mentioned.

Mr. Powell pointed to a number of potential causes behind the current improve in long-term charges: Greater progress, excessive deficits, the Fed’s resolution to shrink its personal safety holdings and technical market elements might all be contributing elements.

“There are various candidate concepts, and many individuals feeling their priors have been confirmed,” Mr. Powell mentioned.

He later added that the “backside line” was the rise in market charges was “one thing that we’ll be ,” and “on the margin, it might” scale back the impetus for the Fed to lift rates of interest additional.

The conflict between Israel and Gaza — and the accompanying geopolitical tensions — additionally provides to uncertainty in regards to the international outlook. It stays too early to know the way it will have an effect on the financial system, although it might undermine confidence amongst companies and shoppers.

“Geopolitical tensions are extremely elevated and pose vital dangers to international financial exercise,” Mr. Powell mentioned.

Shares had been uneven as Mr. Powell was talking, suggesting that buyers had been struggling to grasp what his remarks meant for the quick outlook on rates of interest. Greater rates of interest are typically dangerous information for inventory values.

The Fed chair reiterated the Fed’s dedication to bringing inflation underneath management even at a sophisticated second. Client value will increase have come down considerably for the reason that summer time of 2022, after they peaked round 9 p.c. However they remained at 3.7 p.c as of final month, nonetheless properly above the roughly 2 p.c that prevailed earlier than the onset of the coronavirus pandemic.

“A variety of uncertainties, each outdated ones and new ones, complicate our job of balancing the chance of tightening financial coverage an excessive amount of towards the chance of tightening too little,” Mr. Powell mentioned. “Given the uncertainties and dangers, and given how far we now have come, the committee is continuing fastidiously.”

Joe Rennison contributed reporting.