The US Federal Open Market Committee decided last week to maintain the target range for the federal funds rate at 5% to 5.25%, but further hikes are likely moving forward, said Jerome Powell, chair of the US Federal Reserve, in prepared remarks for Congress today. The decision comes as the labor market remains tight, but combating inflation will likely result in some softening.

Powell noted inflation remains well above the Fed’s 2% goal.

“Nearly all FOMC participants expect that it will be appropriate to raise interest rates somewhat further by the end of the year,” he said. “But at last week’s meeting, considering how far and how fast we have moved, we judged it prudent to hold the target range steady to allow the committee to assess additional information and its implications for monetary policy.”

The economy faces headwinds from tighter credit conditions for households and businesses, and these are likely to weigh on economic activity, hiring and inflation. However, the extent of their impact remains uncertain.

It will also take time for the full effects of monetary restraint to be realized.

“Reducing inflation is likely to require a period of below-trend growth and some softening of labor market conditions,” Powell said. “Restoring price stability is essential to set the stage for achieving maximum employment and stable prices over the longer run.”

There are already signs that supply and demand in the labor market are coming into better balance, he said.

“The labor force participation rate has moved up in recent months, particularly for individuals aged 25 to 54,” Powell said. “Nominal wage growth has shown some signs of easing, and job vacancies have declined so far this year. While the jobs-to-workers gap has narrowed, labor demand still substantially exceeds the supply of available workers.”