Powell Says Fed Has Time to Assess Data Before Deciding to Cut

(Bloomberg) -- Federal Reserve Chair Jerome Powell signaled policymakers will wait for clearer signs of lower inflation before cutting interest rates, even though a recent bump in prices didn’t alter their broader trajectory.

Powell said recent inflation figures — though higher than expected — did not “materially change” the overall picture. He reiterated his expectation that it will likely be appropriate to begin lowering rates “at some point this year.”

“On inflation, it is too soon to say whether the recent readings represent more than just a bump,” Powell said Wednesday in a speech at Stanford University in California. “We do not expect that it will be appropriate to lower our policy rate until we have greater confidence that inflation is moving sustainably down toward 2%.”

The Federal Open Market Committee held interest rates steady last month. Officials narrowly maintained their outlook for three interest-rate cuts this year, even as key inflation metrics have picked up in 2024. Powell and other Fed officials have repeatedly said they are in no hurry to cut rates, and that their moves will depend on incoming data.

As Chair Powell answered questions following his opening remarks, Treasury yields reversed or pared earlier gains. The S&P 500 remained higher. Investors are putting roughly even odds on an initial cut in June, and pricing suggests they see a chance of fewer than three reductions this year, according to futures. 

“Given the strength of the economy and progress on inflation so far, we have time to let the incoming data guide our decisions on policy,” Powell said in the opening remarks ahead of a fireside chat. “If the economy evolves broadly as we expect, most FOMC participants see it as likely to be appropriate to begin lowering the policy rate at some point this year.”

Powell’s prepared remarks reinforce those he’s made following the March meeting. They also suggest that the Fed is unlikely to reduce rates at their next gathering taking place April 30-May 1. 

The Fed’s preferred gauge of underlying inflation cooled in February after an even larger increase than previously reported in January, government data released Friday showed. Even so, the back-to-back increases in the core personal consumption expenditures price index — which excludes volatile food and energy costs — were the biggest in a year.

“Powell still sounds dovish, since the jump in inflation earlier this year might be a blip rather than a new trend,” said Kathy Bostjancic, chief economist at Nationwide Mutual Insurance Co. “His comments support our view that a June rate cut is on the table but we need to see softening in inflation readings starting with the March readings.”

Bostjancic says that as of now, she sees a rate reduction in July as more likely.

Jobs Picture

Powell said last month that an unexpected weakening in the labor market could warrant a policy response from Fed officials. The Fed will get another update on the health of the job market Friday with the release of the monthly employment report, which is expected to show a gain of 213,000 jobs in March. 

Fed officials in March were split on how aggressive rate cuts will be this year. The central bank’s “dot plot” showed 10 officials forecast three or more quarter-point cuts this year, while nine anticipated two or fewer.

Later on Wednesday, Fed Governor Adriana Kugler said she expects inflation can continue to moderate further without a significant cost to jobs or the broader economy. 

“If disinflation and labor market conditions proceed as I am currently expecting, then some lowering of the policy rate this year would be appropriate,” she said.

Read More: Fed’s Kugler Says Lower Rates This Year Likely Appropriate 

During the fireside chat, Powell detailed the outsized role supply-side factors like population growth have had in the inflation recovery. While it’s unclear if such factors will continue to reduce price pressures going forward, the Fed chair seemed optimistic. 

“There may be more supply-side gains to be had,” he said. “Surveys of businesses still show difficulties in hiring people, difficulties in getting the inputs they need for their businesses — so, there’s some more benefit there.”

The Fed chair also used part of his speech to emphasize that the central bank makes its decisions independent from politics. Powell added that he feels it is improper for him to weigh in on other public policy issues, like climate change policies.

“Our analysis is free from any personal or political bias, in service to the public,” he said. “We will not 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 longer term — and nothing else.”

Read More: Fed Blocks Tough Global Climate Rules for Wall Street Banks

--With assistance from Liz Capo McCormick and Craig Torres.

(Updates with comment from Fed Governor Kugler.)

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