Fed Chair Jerome Powell came off dovish in a press conference following last week's decision on rates. He carried much of the same tone Tuesday afternoon in an interview at the Economic Club of Washington, D.C. when he highlighted the key takeaways.

"The message we were sending at the FOMC meeting last Wednesday was really that the disinflationary process, the process of getting inflation down, has begun," Powell said.

What To Know: Last week, the Federal Reserve raised its benchmark rate by 0.25%, marking the central bank's second consecutive policy downshift.

The move was in line with average economist expectations and came in the wake of a less aggressive rate hike from the Fed in December. At its last meeting of 2022, the Fed opted for a 0.5% hike, which was preceded by four straight 0.75% rate hikes.

The SPDR S&P 500 (NYSE:SPY) initially moved lower following the release as investors latched on to language that "ongoing increases" would be appropriate, but Powell seemed to send the message that the Fed may be close to winding down its response to stubbornly high consumer prices.

Wharton Professor of Finance Jeremy Siegel told Benzinga last week that the only thing left standing between the Fed and a pause is the strength of the labor market.

The Fed won't pause "until we get an actual negative number of payroll jobs," Siegel said in an exclusive interview on Benzinga's "PreMarket Prep."

Related Link: EXCLUSIVE: Wharton Professor Jeremy Siegel Says There's Only One Indicator Left Standing Between The Federal Reserve And A Pause

Shortly after the FOMC meeting, new data came out that showed the labor market continued to remain resilient in January. When Powell was asked if the committee would have made a different decision if it had seen the jobs data prior to the FOMC meeting, Powell said, "We don't get to play it that way."

He then followed that up by reiterating that although inflation is coming down, it still has a long way to go. The goods sector is showing a positive trend, but the services sector is not showing any disinflation yet, he said.

The labor report for January was stronger than what Powell had anticipated, he said: "It kind of shows you why we think that this will be a process that takes a significant period of time."

"By the way, it's a good thing that inflation has started to come down ... and that has not happened at the cost of a strong labor market," he added.

The Fed chair reiterated that "ongoing increases" will likely be appropriate to bring inflation down to the committee's 2% goal over time, but he explained that the Fed remains data dependent.

"All of these numbers that we are throwing around here are conditional on incoming data and what happens, so we never say 'this is what we think will happen.' We make a tentative forecast and then we let the data come in," Powell said.

The Fed will get a look at several new data sets before it makes its next decision on rates in late March. Most economists are turning their attention to the January CPI print, due Feb. 14, but as Siegel pointed out, the strength of the labor market appears to be inhibiting the Fed from opting for a pause. 

Powell told listeners at the Washington D.C. Economic Club that inflation will not go away quickly or painlessly. The committee's base case is that it will need to continue to raise rates before it can look to incoming data to see if it has done enough. If the labor market continues to remain strong or CPI data moves higher, Powell noted that the Fed may need to hike rates more than what the market is currently pricing in.

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SPY Price Action: The SPY initially spiked higher on early comments from the Fed Chair Tuesday afternoon before reversing and turning negative after Powell suggested that a 0.5% hike is still on the table for the next meeting.

The SPY was down 0.33% at $408.51 at the time of writing, according to Benzinga Pro.

Photo: courtesy of the Federal Reserve.