Federal Reserve Chair Jerome Powell speaks during a press conference following a closed two-day Federal Open Market Committee meeting on interest rate policy at the Federal Reserve in Washington, DC on December 13, 2023.
Kevin Lamarque | Reuters
Federal Reserve Chairman Jerome Powell said on Tuesday that while the U.S. economy was otherwise strong, inflation had not returned to the central bank’s target, noting that it remained unlikely that it would in the foreseeable future Time interest rate cuts are imminent.
Speaking at a policy forum focused on U.S.-Canada economic relations, Powell said that while inflation continues to fall, it has not moved fast enough and the current state of policy should remain intact.
“Recent data shows solid growth and continued strength in the labor market, but also a lack of further progress toward returning to our 2% inflation target this year,” the Fed chief said during a panel discussion.
Echoing recent comments from central bank officials, Powell noted that current levels of monetary policy will likely be maintained until inflation approaches target.
Since July 2023, the Fed has kept its key interest rate in a target range between 5.25% and 5.5%, the highest level in 23 years. This was the result of eleven consecutive rate hikes starting in March 2022.
“Recent data clearly has not given us greater confidence, but rather suggests that it will likely take longer than expected to achieve that confidence,” he said. “Nevertheless, we believe that policymakers are well placed to deal with the risks we face.”
Powell added that “we can maintain the current level of restrictions for as long as necessary until inflation shows further progress.”
The comments follow higher-than-expected inflation data for the first three months of 2024. A consumer price index for March released last week showed inflation running at an annual rate of 3.5% – well below the peak of around 9% in mid-2022 but trending upward since October 2023.
Treasury yields rose as Powell spoke. The benchmark 2 year gradewhich is particularly sensitive to Fed interest rate movements, briefly exceeded 5%, while the benchmark 10-year return increased by 3 basis points. The S&P 500 wobbled after Powell’s comments, briefly turning negative during the day before recovering.
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10 year and 2 year returns
Powell noted that the Fed’s preferred inflation indicator, the personal consumption expenditures price index, showed core inflation at 2.8% in February and has been little changed in recent months.
“We said am [Federal Open Market Committee] that we will need more confidence beforehand that inflation will move sustainably towards 2% [it will be] “It is appropriate to relax the policy,” he said. “Recent data clearly has not given us greater confidence and rather suggests that it will likely take longer than expected for us to achieve that confidence.”
Financial markets have had to adjust their expectations for interest rate cuts this year. Entering 2024, traders in the Fed funds futures market expected six to seven rate cuts this year, starting in March. As the data has evolved, expectations have shifted to one or two cuts, assuming moves of a quarter of a percentage point, as late as September.
In their most recent update, FOMC officials indicated in March that they expected three cuts this year. However, several policymakers in recent days have emphasized the data-dependent nature of the policy and have not committed to determining the size of the cuts.
Correction: Powell’s comments come after inflation data in the first three months of 2024 was higher than expected. An earlier version misstated the year.
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2024-04-16 22:27:55
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