A resilient US consumer and better-than-expected economic growth has been the story of the economy throughout the summer of 2023.
It might also be what pushes the Federal Reserve to keep raising interest rates.
"We are attentive to signs that the economy may not be cooling as expected," Federal Reserve Chair Jerome Powell said Friday at the Jackson Hole Economic Symposium in Jackson Hole, Wyo.
"Additional evidence of persistently above-trend growth could put further progress on inflation at risk and could warrant further tightening of monetary policy," Powell added.
While acknowledging inflation has moved down from its peak, Powell once again noted that prices remain "too high" and the central bank has not written off further tightening policy. Data from the CME Group on Friday showed markets pricing in a 55% chance the Fed raises rates at its November policy meeting.
Read more: What the latest Fed rate hike plan means for bank accounts, CDs, loans, and credit cards
The Fed's preferred inflation metric, core PCE, showed prices increased 4.1% in June, well off the Fed's long-run goal of 2% but progress from a peak of 5.4% in February 2022.
The tick down in inflation has come as signs of a resilient US economy have been abundant.
July's retail sales report revealed control group sales, which contribute directly into GDP, rose 1%. Economists surveyed by Bloomberg had expected just a 0.5% increase for the control group.
The July labor report showed wages increased 4.4% compared to the year prior while the unemployment rate remains historically low, though overall job gains showed signs of cooling.
"Evidence that the tightness in the labor market is no longer easing could also call for a monetary policy response," Powell said.
This run of strong data has had economists on Wall Street, and even the Fed's own staff, call off their 2023 recession forecasts while also spurring conversations around a "soft landing" for the economy in which inflation stabilizes without economic growth taking a significant downturn.
Some on Wall Street are forecasting "unspectacular growth" that would see the economy avoiding recession, though not exactly impressing. Other outlooks, however, suggest more robust growth could be ahead for the US economy.
As of Thursday, the Atlanta Fed's GDPNow forecast, for instance, projected annualized GDP growth of 5.9% in the third quarter, which would be the most robust period of economic growth since the fourth quarter of 2021.
And economists say growth at that pace provides "upside risks" to inflation that could keep prices from falling down to the Fed's 2% target.
"By highlighting these [upside] risks, and noting that policymakers would proceed 'carefully,' Powell maintained maximum policy optionality for upcoming meetings," EY chief economist Gregory Daco wrote in a note on Friday.
As Powell often reiterates, the Fed plans to remain data dependent and the week ahead will bring more information on two key data points.
The July PCE report and the August labor report are both set for release in the coming week and will provide the Fed further information on the growth and inflation fronts.
But an imminent turn in the Fed's approach appears unlikely after Powell's remarks.
"It is the Fed's job to bring inflation down to our 2% goal, and we will do so," Powell said. "We are prepared to raise rates further if appropriate, and intend to hold policy at a restrictive level until we are confident that inflation is moving sustainably down toward our objective."
Josh Schafer is a reporter for Yahoo Finance.
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