Connect with us


The Fed’s Powell emphasizes the need for more evidence that inflation is declining before cutting rates




The Fed's Powell emphasizes the need for more evidence that inflation is declining before cutting rates

Jerome Powell, Chairman of the Federal Reserve Bank, speaks during the Stanford Business, Government and Society Forum at Stanford University on April 3, 2024 in Stanford, California.

Justin Sullivan | Getty Images

Federal Reserve Chairman Jerome Powell said Wednesday that it will take some time before policymakers can assess the current state of inflation, leaving the timing of possible rate cuts uncertain.

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

“On the inflation front, it is too early to say whether the recent numbers are more than just an increase,” Powell said in a speech ahead of a question-and-answer session at Stanford University.

“We do not expect it will be appropriate to cut our policy rate until we have greater confidence that inflation is moving sustainably down towards 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 policy decisions.”

The comments come two weeks after the rate-setting Federal Open Market Committee voted again to keep short-term bond rates stable. In addition, the committee’s statement after the March 20 meeting included the “greater confidence” qualifier that was necessary before making cuts.

‘bumpy path’

Markets widely expect the FOMC to start easing policy this year, although they have had to recalibrate their outlook for the timing and size of cuts as inflation has remained stubbornly higher. Other economic variables, particularly in the labor market and consumer spending, have also held steady, giving the Fed time to assess the current state of play before taking action.

The Fed’s preferred inflation measure, the personal consumption expenditure price index, showed an annual rate of 2.5% for February, or 2.8% for the crucial core measure that excludes food and energy. Almost all other inflation gauges show figures of more than 3%.

“Recent data on both job growth and inflation have been higher than expected,” Powell said. “However, the recent data do not materially change the overall picture, which remains one of solid growth, a strong but rebalancing labor market and inflation on a sometimes bumpy path towards 2 percent.”

Other Fed officials who spoke this week made comments consistent with the Fed’s patient approach.

Atlanta Fed President Raphael Bostic told CNBC on Wednesday that he thinks only one cut is in the offing as prices have moved higher on some key items. San Francisco Fed President Mary Daly said three cuts are a “reasonable baseline” but noted there are no guarantees, while Cleveland’s Loretta Mester also said cuts would likely happen later this year, adding he added adds that long-term interest rates may be higher than expected. All three are FOMC voters.

Powell reiterated that decisions are made “one meeting at a time,” noting only that cuts will “probably be appropriate sometime this year.”

Uncertainty over interest rates has caused some consternation in markets, with stocks falling sharply earlier this week as government bond yields rose. The market stabilized Wednesday, but traders in the Fed Funds futures market again revalued their interest rate expectations, raising some doubts about a June cut as the market-implied probability rose to about 54% at one point, according to data from the CME Group.

Elections looming

In addition to his comments on interest rates, Powell spent some time discussing the Fed’s independence.

With the presidential election campaign in full swing, Powell noted the importance of avoiding political issues.

“Our analysis is free from personal or political bias, in the service of the public,” he said. “We’re not always going to 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 talked about “mission creep,” specifically as it relates to the Fed’s demand to become involved in climate change issues and the preparations financial institutions are making for related events.

“We are not climate policymakers, nor do we want to be,” he said.

Correction: Powell’s comments come two weeks after the Federal Open Market Committee voted again to keep rates steady. An earlier version gave the timing incorrectly. Raphael Bostic is president of the Atlanta Fed. An earlier version incorrectly identified the city.

Don’t miss these exclusive offers from CNBC PRO