Inflation is still too high despite lower readings over the summer, and returning inflation to a 2% rate is likely to require further softening in the labor market, Federal Reserve Chair Jerome Powell said in a speech on Oct. 19.

Powell noted that declining inflation has, so far, not come at the cost of meaningfully higher unemployment. That is a welcome development, but also a historically unusual one.

“Healing of supply chains in conjunction with the rebalancing of demand and supply in the labor market has allowed disinflation without substantially weaker economic activity,” Powell said. “Indeed, economic growth has consistently surprised to the upside this year, as most recently seen in the strong retail sales data released earlier this week.”

Financial conditions have tightened in recent months with long-term bond yields serving as an important factor.

“Still, the record suggests that a sustainable return to our 2% inflation goal is likely to require a period of below-trend growth and some further softening in labor market conditions,” he said.

Geopolitical tensions are also highly elevated and pose risks to global economic activity.

Powell also commented on the war in Israel: “Speaking for myself, I found the attack on Israel horrifying, as is the prospect for more loss of innocent lives.”

Overall, Powell said he and his colleagues are committed to bringing inflation down to 2% and to keeping a restrictive monetary policy until that objective is met.

“Given the uncertainties and risks, and how far we have come, the committee is proceeding carefully,” he said. “We will make decisions about the extent of additional policy firming and how long policy will remain restrictive based on the totality of the incoming data, the evolving outlook and the balance of risks.”

The Fed has raised its key rate 11 times since March 2022 in order to tame inflation; the rate is currently at 5.4%, its highest level in 22 years, The Associated Press reported.