Jay Powell tried to dampen investor expectations the Federal Reserve will cut interest rates any time soon in a hawkish speech signalling the US central bank has a long way to go in its fight against inflation.

“I will simply say that we have more ground to cover,” the Fed chair said in prepared remarks to be delivered at the Brookings Institution on Wednesday. “History cautions strongly against prematurely loosening policy. We will stay the course until the job is done.”

Powell’s intervention comes after a sustained market rally, with the S&P 500 on course for its first stretch of back-to-back monthly gains since summer last year, as investors wager the Fed is losing the stomach for its fight against higher prices.

Investors were buoyed by the October inflation report, published earlier this month, which undershot expectations for the first time in months.

But Powell on Wednesday cautioned against reading too much into one month of data, instead stressing it will take “substantially more evidence to give comfort that inflation is actually declining”.

He warned that while inflation forecasts from the Fed and others pointed to a “significant decline over the next year”, the central bank had been repeatedly wrongfooted by incorrect projections in the past.

“The truth is that the path ahead for inflation remains highly uncertain,” he said, adding the Fed had not yet seen “clear progress” of slower inflation.

Despite Powell’s gloomy tone, stocks rose to session highs during the speech on Wednesday while the two-year yield, which moves with interest rate expectations, was roughly flat.

In a wide-ranging speech about the outlook for monetary policy, Powell said that in order to bring inflation back down to the Fed’s 2 per cent target, the labour market must become substantially softer and there would need to be a “sustained period of below-trend growth”.

He said that job gains still remain far too high, at about 290,000 positions per month over the past three months. And wage growth remains well above than the figure that would correspond to inflation falling back to target, he added.

In a discussion after the speech, Powell said the Fed could dampen demand for workers without causing a material rise in the unemployment rate if companies opted to slash vacancies rather than making workers redundant.

Powell’s comments come at a critical juncture for the Fed, which is preparing to slow the pace of its interest rate increases after a string of large 0.75 percentage point rises at its four previous meetings.

He said the Fed could ease off the pace of rate rises as soon as its next meeting in December. But the “timing of that moderation is far less significant than . . . how much further we will need to raise rates to control inflation, and the length of time it will be necessary to hold policy at a restrictive level”.

Powell reiterated that the end point of the tightening cycle would probably need to be higher than forecasted in projections released in September, which suggested most officials anticipated a so-called terminal rate of 4.6 per cent.

Fed officials are still unanimous in their view that inflation remains too high and that they will need to tighten policy further. But divisions have started to emerge over how much more restraint to apply to the economy next year given early indications that higher borrowing costs are starting to bite consumers and businesses.

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