Fed's Powell emphasizes need for more evidence that inflation is easing before cutting rates

Fed's Powell emphasizes need for more evidence that inflation is easing before cutting rates

Jerome Powell, chairman of the US Federal Reserve, during a Fed Listens event in Washington, DC, US, on Friday, March 22, 2024. A trio of central bank decisions this week sent a clear message to markets that officials are preparing to loosen monetary policy, reigniting investor appetite for risk.

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Federal Reserve Chairman Jerome Powell said Wednesday it will take a while for policymakers to evaluate the current state of inflation, keeping the timing of potential interest rate cuts uncertain.

Speaking specifically about stronger-than-expected price pressures to start the year, the central bank leader said he and his fellow officials are in no rush to ease monetary policy.

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“On inflation, it is too soon to say whether the recent readings represent more than just a bump,” Powell said in remarks ahead of a question-and-answer session at Stanford University.

“We do not expect that it will be appropriate to lower our policy rate until we have greater confidence that inflation is moving sustainably down toward 2 percent,” he added. “Given the strength of the economy and progress on inflation so far, we have time to let the incoming data guide our decisions on policy.”

The remarks come a week after the rate-setting Federal Open Market Committee again voted to hold benchmark short-term borrowing rates steady. In addition, the committee’s post meeting statement on March 20 included the “greater confidence” qualifier needed before cutting.

‘Bumpy path’

Markets widely expect the FOMC to start easing policy this year, though they have had to recalibrate their outlook for the timing and extent of cuts as inflation has held stubbornly higher. Other economic variables, particularly in the labor market and consumer spending, have held up as well, giving the Fed time to assess the current state of affairs before moving.

The Fed’s preferred inflation measure, the personal consumption expenditures price index, showed a 12-month rate of 2.5% for February, or 2.8% for the pivotal core measure that excludes food and energy. Virtually all other inflation gauges show rates in excess of 3%.

“Recent readings on both job gains and inflation have come in higher than expected,” Powell said. “The recent data do not, however, materially change the overall picture, which continues to be one of solid growth, a strong but rebalancing labor market, and inflation moving down toward 2 percent on a sometimes bumpy path.”

Other Fed officials speaking this week have made remarks consistent with the Fed’s patient approach.

Cleveland Fed President Raphael Bostic told CNBC on Wednesday that he thinks just one cut might be in the offing as prices of some important items have turned higher. San Francisco Fed President Mary Daly said three cuts is a “reasonable baseline” but noted there are no guarantees, while Cleveland’s Loretta Mester also said cuts are likely later this year while adding that rates over the longer term may be higher than anticipated. All three are FOMC voters.

Powell reiterated that decisions are being made “meeting by meeting” and noted only that cuts are “likely to be appropriate … at some point this year.”

The uncertainty about rates has caused some consternation in markets, with stocks falling sharply earlier this week as Treasury yields moved higher. The market stabilized Wednesday, but traders in the fed funds futures market again repriced their rate expectations, casting some doubt on a June cut as the market-implied probability moved to about 54% at one point, according to CME Group data.

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