Why Higher Fed Rates Are Not Totally Off the Table

Investors do not expect the Federal Reserve to raise interest rates again, and officials have made it clear that they see further increases as unlikely. But one important takeaway from recent Fed commentary is that unlikely and inconceivable are not the same thing.

After the central bank held rates steady at 5.3 percent last week, the Fed’s chair, Jerome H. Powell, delivered a news conference where what he didn’t say mattered.

Asked whether officials might raise interest rates again, he said he thought they probably would not — but he also avoided fully ruling out the possibility. And when asked, twice, whether he thought rates were high enough to bring inflation fully under control, he twice tiptoed around the question.

“We believe it is restrictive, and we believe over time it will be sufficiently restrictive,” Mr. Powell said, but he tacked on a critical caveat: “That will be a question that the data will have to answer.”

There was a message in that dodge. While officials are most inclined to keep interest rates at their current levels for a long time in order to tame inflation, policymakers could be open to higher interest rates if inflation were to pick back up. And Fed officials have made that clear in interviews and public comments over the past several days.

Neel Kashkari, president of the Federal Reserve Bank of Minneapolis, said on Tuesday that he was wary about a scenario in which inflation gets stuck at its current level, and hinted that it was possible that rates could rise more.