Federal Reserve Chair Jerome Powell stated that the U.S. economy, while strong in other aspects, has not yet reached the central bank’s inflation target. This implies that interest rate cuts are unlikely in the near future.
Powell made these remarks at a policy forum focused on U.S.-Canada economic relations. He noted that although there has been solid growth and strength in the labor market, inflation has not progressed quickly enough to warrant a change in current policy.
The Fed has maintained its benchmark interest rate within a range of 5.25% to 5.5% since July 2023, a level not seen in 23 years. Powell mentioned that it may take longer than expected to reach the inflation target, and policy will remain unchanged until then.
Recent inflation data for the first three months of 2024 has been higher than anticipated. Treasury yields increased following Powell’s comments, indicating market sensitivity to Fed rate moves.
Powell emphasized that policy will stay restrictive until inflation shows more progress. Market expectations for rate cuts have shifted throughout the year, with traders now anticipating fewer rate reductions starting in September.
FOMC officials projected three rate cuts in 2024, but the exact number remains uncertain as policymakers consider the data-dependent nature of policy adjustments.
Federal Reserve Chair Jerome Powell recently stated that the U.S. economy, while strong, has not yet reached the central bank’s inflation goal of 2%. Powell indicated that interest rate cuts are unlikely in the near future, as current policy remains appropriate. Despite solid growth and strength in the labor market, inflation has not shown significant progress. Powell emphasized that policy will remain in place until inflation gets closer to the target. Recent inflation data has been higher than expected, with the consumer price index showing inflation at a 3.5% annual rate in March 2024. The Fed’s preferred inflation gauge, the personal consumption expenditures price index, revealed core inflation at 2.8% in February. Financial markets have adjusted their expectations for rate cuts, with traders now anticipating one or two reductions later in the year. FOMC officials had previously forecasted three cuts in March. Powell stressed the importance of data-dependent policy moving forward.
Source link