Fed Chair Powell signals no quick rate cuts ahead

Despite a strong economy, persistent high inflation means the Fed is unlikely to cut rates soon

Fed Chair Powell signals no quick rate cuts ahead

Federal Reserve Chair Jerome Powell indicated on Tuesday that the US economy remains robust but has not achieved its inflation target, suggesting that interest rate cuts are unlikely in the near future, as reported by CNBC.   

During a policy forum on US-Canada economic relations, Powell noted that while inflation is gradually decreasing, it is not reducing swiftly enough to warrant a change in the current policy stance.  

“More recent data shows solid growth and continued strength in the labor market, but also a lack of further progress so far this year on returning to our 2 percent inflation goal,” Powell stated during a panel discussion.   

He reiterated that the existing monetary policy would likely persist until inflation approaches the target.  

Since July 2023, the Fed has maintained its benchmark interest rate between 5.25 percent -5.5 percent, a level not seen in 23 years, following 11 consecutive rate increases starting in March 2022.   

Powell expressed concern over recent data, suggesting that reaching the desired confidence in the inflation trajectory may take longer than anticipated.  

“That said, we think policy is well positioned to handle the risks that we face,” he added, confirming the Fed's readiness to maintain the current rate if necessary.   

Inflation figures from early 2024 have exceeded expectations, with the consumer price index in March registering a 3.5 percent annual rate, significantly reduced from a mid-2022 peak but up since October 2023.  

Following Powell's comments, Treasury yields increased, and the stock market showed volatility, with the S&P 500 experiencing fluctuations.   

Powell highlighted the personal consumption expenditures price index, the Fed's preferred inflation measure, which reported a core inflation rate of 2.8 percent in February, relatively stable over recent months.   

“We’ve said at the [Federal Open Market Committee] that we’ll need greater confidence that inflation is moving sustainably towards 2 percent before [it will be] appropriate to ease policy,” Powell explained. 

The adjustment of financial market expectations reflects this caution, with initial predictions of multiple rate cuts this year being scaled back significantly.   

As of March, FOMC officials projected three rate cuts in the year, though they and other policymakers have emphasized the data-dependent nature of their decisions, avoiding firm commitments on the timing or extent of rate reductions.