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Is the Federal Reserve going to continue to hike interest rates?

STEVE INSKEEP, HOST:

The Federal Reserve wrapped up its annual summer conference at Jackson Hole, Wyo., over the weekend, offering Fed watchers a few clues as to its next move on interest rates. We called one of our favorite Fed watchers, David Wessel, to find out more. He is director of the Hutchins Center at the Brookings Institution. David, good morning.

DAVID WESSEL: Good morning, Steve.

INSKEEP: OK, let's think this through here. The Fed has raised interest rates more than five percentage points in the past year and a half. Then they come to this summer conference, and they end up talking to other important figures in the financial world. Are they going to lift interest rates further?

WESSEL: Well, Jay Powell, the Fed chair, gave an emphatic maybe to that question at Jackson Hole. He pointed out that the Fed has raised interest rates a lot, and the bond market has raised interest rates a lot, which has pushed up mortgage rates. They're now above 7%, highest in more than 20 years. He acknowledged that many measures of economic growth have slowed, and it takes time for Fed interest rates to work their way through the economy. So perhaps the Fed has done enough, he implied.

But then he added that the Fed is, in his word, attentive to signs that the economy may not be cooling as expected. He pointed to robust consumer spending. And he underscored the Fed's commitment to get inflation down to 2%. So that led people to believe that they're certainly not going to cut interest rates any time soon. They're going to hold them high for a while. Right now, markets are betting that the Fed will not raise rates in September, but they put 50-50 probability on another rate hike either in November or December of this year.

INSKEEP: So we've concluded they either will or won't raise interest rates.

WESSEL: Absolutely. See - you could be an economics reporter, Steve.

INSKEEP: (Laughter) That's perfect. What data might push them one way or the other?

WESSEL: Right. The Fed talks incessantly about being data dependent. On one hand, they're looking at inflation. They look at something called the personal consumption expenditures price index, not the consumer price index, which is more widely known. That's been coming down. But Powell said two months of good data aren't enough to build confidence that they've really conquered inflation. And he's especially eager to see inflation in health care, food services, transportation and other services come down. We get a new reading on that index on Thursday.

They're also very focused on the labor market, which has cooled some but is still pretty hot. The unemployment rate is historically low. Employers are creating lots of jobs. And the number of job openings, though down, remains unusually high. So Powell made clear that if the job market doesn't continue to cool off, he is likely to raise rates again. Now, we get some data on job openings tomorrow, on Tuesday. And then we get a big report on the job market on Friday, just before Labor Day.

INSKEEP: Can you give me an idea, David, of the scene at this Jackson Hole conference? I mean, Jerome Powell is there. He gives a speech, but there's other people there, his counterparts from Europe, from Britain, from Japan - lots of important people from around the world.

WESSEL: That's right. And there's also a number of economists, many of them from academia, and a whole cast of reporters hanging on every word. I was kind of interested in a speech that the president of the European Central Bank, Christine Lagarde, made where she said that the economy has changed so much, it's hard for central bankers to be confident that they know what they're doing - not very reassuring. She talked about profound changes in the labor market, AI, the urgency of transition to - away from fossil fuels and the fact that the global economy seems to be fragmenting into competing blocs with rising levels of protectionism.

But I thought, in what was perhaps an ominous portent - my friend Nick Timiraos of The Wall Street Journal reported that a bunch of central bankers and economists were forced to retreat during a three-mile hike in Grand Teton National Park on Friday when they hit a thunderstorm with hailstones, and that turned hiking trails into muddy streams.

INSKEEP: Didn't have a very good forecast, I guess. David, thanks so much.

WESSEL: You're welcome.

INSKEEP: David Wessel, director of the Hutchins Center at the Brookings Institution. Transcript provided by NPR, Copyright NPR.

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