U.S. Federal Reserve Chairman Jerome Powell during a Fed Listens event in Washington, DC, U.S., on Friday, March 22, 2024. Three central bank decisions this week sent a clear message to markets that officials are easing prepare monetary policy, which will revive investors’ risk appetite.
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Federal Reserve Chairman Jerome Powell said on Wednesday that it would take a while for policymakers to assess the current inflation situation, leaving the timing of possible interest rate cuts uncertain.
The central bank chief spoke in particular about stronger-than-expected price pressures at the start of the year and said he and his counterparts were in no hurry to ease monetary policy.
Watch Fed Chair Powell’s live speech at the Stanford Policy Conference Economic Forum
“When it comes to inflation, it is too early to say whether the recent readings represent more than just an increase,” Powell said in remarks to a question-and-answer session at Stanford University.
“We do not believe it will be appropriate to cut our key interest rate until we have greater confidence that inflation is moving sustainably toward 2 percent,” he added. “Given the strength of the economy and the progress on inflation so far, we have time to let the incoming data guide our policy decisions.”
The comments come two weeks after the Federal Open Market Committee, which sets interest rates, voted again to keep benchmark short-term lending rates stable. In addition, the committee’s opinion after the March 20 meeting included the criterion of “greater self-confidence” required before the cut.
“Bumpy road”
Markets generally expect the FOMC to begin easing monetary policy later this year, but they have had to recalibrate their outlook for the timing and extent of cuts as inflation remains stubbornly high. Other economic variables, particularly the labor market and consumer spending, have also held up, giving the Fed time to assess the current situation before taking action.
The Fed’s preferred measure of inflation, the personal consumption expenditures price index, showed a 12-month rate of 2.5% in February and 2.8% for the key core measure, which excludes food and energy. Virtually all other inflation indicators show rates above 3%.
“Recent numbers on job growth and inflation have come in higher than expected,” Powell said. “However, the latest data does not significantly change the overall picture, which continues to be characterized by solid growth, a strong but rebalancing labor market and a sometimes bumpy downward trend in inflation toward 2 percent.”
Other Fed officials have made remarks in their speeches this week consistent with the Fed’s patient approach.
Atlanta Fed President Raphael Bostic told CNBC on Wednesday that he believes only a rate cut is imminent because prices for some key items have risen. San Francisco Fed President Mary Daly said three rate cuts was a “reasonable baseline” but noted there were no guarantees. Loretta Mester of Cleveland also said rate cuts were likely later this year, adding that longer-term rates could be higher than expected. All three are FOMC voters.
Powell reiterated that decisions would be made “session by session,” noting only that cuts “will likely be appropriate…sometime this year.”
Uncertainty over interest rates has caused some consternation in markets, with stocks falling sharply earlier this week as Treasury yields rose. The market stabilized on Wednesday, but traders in the Fed funds futures market again reassessed their interest rate expectations, raising some doubts about a cut in June, with the market’s implied probability at one point hovering around 54, according to CME Group % rose.
Election is coming
In addition to his comments on interest rates, Powell spent some time discussing the Fed’s independence.
As the presidential campaign heats up, Powell noted the importance of staying away from political topics.
“Our analysis is free from any personal or political bias and serves the public,” he said. “We won’t always get it right – no one does. But our decisions will always reflect our careful assessment of what is best for our economy in the medium and longer term – and nothing else.”
He also spoke about “mission creep,” particularly as it relates to calls for the Fed to get involved in climate change issues and the preparations that financial institutions are making for such events.
“We are not climate politicians and don’t want to be,” he said.
Correction: Powell’s comments come two weeks after the Federal Open Market Committee voted again to keep interest rates stable. The timing was incorrect in an earlier version. Raphael Bostic is president of the Atlanta Fed. An earlier version misstated the city.
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2024-04-03 17:08:38
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