Federal Reserve Chairman Jerome Powell reiterated on Tuesday that inflation is falling more slowly than expected and the central bank will remain on hold for an extended period.
Speaking at the annual general meeting of the Foreign Bankers’ Association in Amsterdam, the central bank chief noted that the rapid decline in inflation in 2023 had slowed significantly this year, leading to a rethink in the direction of policy.
“We didn’t expect this to be a smooth journey. But these [inflation readings] “This showed us that we have to be patient and let the restrictive policies do their work.”
While he expects inflation to fall over the course of the year, he noted that this has not happened yet.
“I think it’s really about keeping policy at the current rate for longer than expected,” he said.
However, Powell also reiterated that he does not expect the Fed to raise interest rates.
The Fed has kept its key federal funds rate in the target range of 5.25% to 5.5%. Although the rate has been there since July, it is the highest level in about 23 years.
“I don’t think it’s likely, based on the data we have, that the next step we take would be a rate hike,” he said. “I think it’s more likely that we’re at a point where we keep the key interest rate where it is.”
Markets were reeling as Powell spoke around 10 a.m. ET and major averages were near breakeven around noon ET. Treasury yields fell slightly and futures traders slightly increased the market’s implied probability of the Fed’s first rate cut in September.
Powell’s comments echoed sentiments he expressed during his May 1 press conference following the Federal Reserve’s latest Federal Open Market Committee meeting.
The committee voted unanimously to hold interest rates in line, but also expressed that despite a series of 11 rate hikes, there had been “no further progress” in returning inflation to the Fed’s 2 percent target.
Tuesday brought a new round of discouraging inflation data as the Labor Department’s producer price index, an indicator of wholesale costs, rose a more-than-expected 0.5% in April due to a rise in services prices.
Although the index showed further price pressure on its surface, Powell called the report “mixed” as some of the components showed easing movement.
“Will inflation be more persistent in the future? …I don’t think we know yet. I think we need more than a quarter of the data to really make a judgment on this,” he said.
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2024-05-14 18:04:04
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