Federal Reserve Chairman Jerome Powell speaks during the Stanford Forum on Business, Government and Society at Stanford University on April 03, 2024 in Stanford, California.
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Federal Reserve Chairman Jerome Powell said on Wednesday that it will take some time for policymakers to assess the current state of inflation, making the timing of potential interest rate cuts uncertain.
Speaking specifically about stronger-than-expected price pressures to start the year, the central bank chief said he and his fellow officials are in no rush to ease monetary policy.
“With regard to inflation, it is too early to say whether the latest readings represent more than just an increase,” Powell said in remarks before a question-and-answer session at Stanford University.
He added: “We do not expect that it would be appropriate to lower our interest rate until we have greater confidence that inflation is moving sustainably towards 2 percent.” “Given the strength of the economy and progress on inflation to date, we have time to let incoming data guide our policy decisions.”
These statements come two weeks after the Federal Open Market Committee, which sets interest rates, voted again in favor of keeping interest rates on short-term loans fixed. In addition, the committee's statement after the meeting on March 20 included the necessary “greater confidence” requirement before cutting.
“bumpy path”
Markets widely expect the FOMC to begin easing policy this year, although it has had to recalibrate its expectations for the timing and extent of cuts as inflation continues to rise. Other economic variables also held up, especially in the labor market and consumer spending, giving the Fed time to assess the current situation before acting.
The Fed's preferred measure of inflation, 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. Almost all other measures of inflation show rates above 3%.
“The latest readings for both job gains and inflation were higher than expected,” Powell said. “However, the latest data does not fundamentally change the overall picture, which remains one of strong growth, a strong but rebalancing labor market, and inflation moving towards 2 percent on a sometimes bumpy path.”
Other Fed officials speaking this week made statements consistent with the Fed's patient approach.
Atlanta Fed President Rafael Bostic told CNBC on Wednesday that he believes only one cut may be in the offing as prices for some important items rise. San Francisco Fed President Mary Daly said three cuts were a “reasonable baseline” but noted there were no guarantees, while Cleveland's Loretta Mester also said cuts were likely later this year, adding Long-term interest rates may be higher than expected. All three are FOMC voters.
Powell emphasized that decisions are being made “meeting by meeting” and noted only that cuts “are likely to be appropriate…at some point this year.”
Uncertainty over interest rates has caused some panic in markets, with stocks falling sharply earlier this week as Treasury yields rose. The market stabilized on Wednesday, but traders in the federal funds futures market repriced their interest rate expectations again, casting some doubt on a June cut with the market's implied probability moving to about 54% at one point, according to CME Group data.
Next elections
Along with his comments on interest rates, Powell spent some time discussing the independence of the Fed.
As the presidential election campaign heats up, Powell noted the importance of staying away from political issues.
“Our analysis is free of any personal or political bias to serve the public,” he said. “We won't always get it right – no one does. But our decisions will always reflect our painstaking assessment of what is best for our economy in the medium and long term – and nothing else.”
He also talked about “mission creep,” specifically regarding some of the demand for the Fed to engage on climate change issues and the preparations financial institutions are making for related events.
“We are not climate policymakers and do not seek to be,” he said.
Correction: Powell's comments come two weeks after the Federal Open Market Committee again voted to keep interest rates steady. An earlier version had the timing wrong. Raphael Bostic is President of the Federal Reserve Bank of Atlanta. An earlier version misstated the city's description.
