Powell: inflation fight 'probably going to be bumpy'

STORY: In his first public comments since the release of January's blockbuster jobs report, U.S. Federal Reserve Chair Jerome Powell on Tuesday admitted he was surprised by the strength of the labor market, and said it showed why the battle against inflation will take more time.

"It's not going to be, we don't think, smooth - it's probably going to be bumpy. And so we think that we're going to need to do further rate increases, as we said, and we think that we'll need to hold policy at a restricted level for a period of time. Then comes the labor market report for January. And it's very strong. It's certainly stronger than anyone I know expected."

In a talk at the Economic Club of Washington, D.C., Powell declined to say whether the surprising addition of 517,000 new jobs in January would force the Fed's benchmark interest rate higher than the 5% to 5.25% range currently anticipated.

But it was another data surprise in an era that has been full of them, and the Fed chief said policymakers were open to shocks in either direction - ready to approve even tighter monetary policy if continued strong job gains lead to higher wages and prices, but also open to the idea that inflation may continue to cool despite ongoing job gains.

"The labor market is extraordinarily strong. And by the way, it's good. It's a good thing that inflation has started to come down without it --- that has not happened at the cost of a strong labor market. So and of course, since then, labor market, sorry, financial conditions have tightened significantly since then."

Based on history the current 3.4% unemployment rate, a 53-year-low, may be beyond "maximum employment", Powell said, and likely would need to rise for inflation to return to the Fed's 2% target.

But with its roots in an unprecedented health crisis, Powell said the cycle has been hard to predict - with wage growth slowing even with continued strong job gains.

Powell's comments fed investor hopes for less aggressive monetary policy, with U.S. stocks closing higher after a choppy trading session on Tuesday.