Finance
Fed Chairman Powell says there has been a “lack of further progress” on inflation this year
Federal Reserve Chairman Jerome Powell speaks during a press conference following a closed two-day meeting of the Federal Open Market Committee on interest rate policy at the Federal Reserve in Washington, DC, on December 13, 2023.
Kevin Lamarque | Reuters
Federal Reserve Chairman Jerome Powell said Tuesday that the U.S. economy, while otherwise strong, has not seen inflation return to the central bank’s target. He points to the further improbability that interest rate cuts are in the offing in the short term.
Speaking to a policy forum focusing on U.S.-Canada economic relations, Powell said that while inflation has continued to fall, it has not been fast enough and the current state of policy should remain intact.
“More recent data shows solid growth and continued strength in the labor market, but also a lack of further progress so far this year in returning to our 2% inflation target,” the Fed chief said during a panel discussion.
Echoing recent statements from central bank officials, Powell indicated that current policies will likely remain in place until inflation moves closer to the target.
Since July 2023, the Fed has kept its benchmark interest rate within a target range between 5.25% and 5.5%, the highest in 23 years. That was the result of eleven consecutive rate hikes that started in March 2022.
“The recent data clearly has not given us more confidence, but instead indicates that it will likely take longer than expected to achieve that confidence,” he said. “That said, we think the policy is well positioned to address the risks we face.”
Powell added that until inflation shows more progress, “we can maintain the current level of restrictions for as long as necessary.”
The comments follow inflation data through the first three months of 2024, which were higher than expected. A consumer price index for March published last week showed annual inflation at 3.5% – well below the peak of around 9% in mid-2022, but higher again since October 2023.
Treasury yields rose as Powell spoke. The benchmark 2 year notewhich is especially sensitive to interest rate movements by the Fed, briefly stood above 5%, while the benchmark 10-year yield rose by 3 basis points. The S&P 500 wavered after Powell’s comments, briefly turning negative the day before the recovery.
10-year and 2-year returns
Powell noted that the Fed’s preferred inflation gauge, the price index for personal consumption expenditures, showed core inflation of 2.8% in February, which has changed little in recent months.
“We said at the [Federal Open Market Committee] that we need more confidence that inflation will move towards 2% sustainably sooner [it will be] appropriate to relax the policy,” he said. “The recent data clearly has not given us more confidence, but instead indicates that it will likely take longer than expected to achieve that confidence.”
The financial markets have had to adjust their expectations for interest rate cuts this year. By early 2024, traders in the Fed Funds futures market had priced in six or seven cuts this year, starting in March. As the numbers have progressed, expectations have shifted to one or two cuts, assuming a quarter of a percentage point, and not until September.
In their most recent update, FOMC officials indicated in March that they see three cuts this year. However, several policymakers have emphasized the data-dependent nature of the policy in recent days and have not committed to setting a level of reductions.
Correction: Powell’s comments track inflation data through the first three months of 2024, which was higher than expected. In an earlier version the year was stated incorrectly.
