Fed Chair Powell says there has been a ‘lack of further progress’ this year on inflation

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, emphasizing that it is still more Interest rate reductions are unlikely to be considered in the near future.

Speaking to a policy forum focused on U.S.-Canada economic relations, Powell said that while inflation continues to fall, it has not moved 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 since the start of the year in returning to our 2% inflation target,” said the head of the Fed during a round table.

Echoing recent statements from central bank officials, Powell said the current level of policy will likely remain in place until inflation approaches the target.

Since July 2023, the Fed has kept its benchmark interest rate within a target range of 5.25% to 5.5%, the highest in 23 years. This is the result of 11 consecutive rate hikes that began in March 2022.

“Recent data has clearly not given us greater confidence, but rather indicates that it will likely take longer than expected to achieve that confidence,” he said. “That said, we believe the policy is well placed to manage the risks we face.”

Powell added that until inflation rises further, “we can maintain the current level of restrictions for as long as necessary.”

The comments follow inflation data for the first three months of 2023 which was higher than expected. A consumer price index for March, released last week, showed inflation at an annual rate of 3.5% – well below the peak of around 9% reached in mid-2022, but rising since October 2023.

Treasury yields rose as Powell spoke. The reference 2 year ticketwhich is particularly sensitive to Fed rate movements, briefly exceeded 5%, while the benchmark index Return over 10 years increased by 3 basis points. The S&P 500 wobbled after Powell’s remarks, briefly turning negative the day before before recovering.

Powell noted that the Fed’s preferred inflation gauge, the Personal Consumption Expenditures Price Index, pointed to core inflation at 2.8% in February and had changed little in recent months. .

“We told the (Federal Open Market Committee) that we need to have greater confidence that inflation is moving sustainably towards 2% before it is appropriate to ease policy,” he said. he declared. “Recent data has clearly not given us greater confidence and instead indicates that it will likely take longer than expected to achieve that confidence.”

Financial markets have had to lower their expectations for rate cuts this year. At the start of 2024, traders in the federal funds futures market were counting on six or seven cuts this year, starting in March. As the data progressed, expectations shifted toward one or two reductions, assuming changes of a quarter of a percentage point, and not starting until September.

In their last update, FOMC officials indicated in March that they planned three cuts this year. However, several policymakers have stressed in recent days that policy depends on data and have not committed to setting a level of reduction.