“There is substantial further ground to cover to get back to price stability,” he said.

Powell’s remarks come at a pivotal moment for the economy, which could go along two very divergent paths: While there are clear signs that inflation is easing and growth is continuing, there are indications that business sentiment is weakening, and high rates will continue to bite into consumer savings as credit card debt swells.

The Fed has hiked interest rates to their highest levels in more than two decades to kill price spikes, and it’s still not clear how far it will go. Now that policymakers have raised borrowing costs more than 5 percentage points since March 2022, even holding them steady for some time will have increasingly strong effects on economic growth. Indeed, markets have sold off in recent weeks as they digest the notion that rates will stay punishingly high for a while.

The Fed chief made plain that the central bank is still more worried about rising prices than causing a recession, but he said he and his fellow officials would attempt to balance the risk of inflation becoming more baked into the economy with the risk that they could do “unnecessary harm to the economy.”

Still, he said higher inflation also poses risks, particularly to the job market. It could “ultimately require monetary policy to wring more persistent inflation from the economy at a high cost to employment,” he said.

Before the Fed’s next rate decision in September, the government will report new monthly data on inflation and jobs, and central bank officials have made clear that incoming information on the economy will guide their next moves.

“We will proceed carefully as we decide whether to tighten further or, instead, to hold the policy rate constant and await further data,” Powell said.