Fed’s Powell emphasizes need for more evidence that inflation is easing before cutting rates

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

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

“When it comes to inflation, it’s too early to say whether the recent numbers represent more than just an increase,” Powell said before a question-and-answer session at Stanford University.

“We do not believe it will be appropriate to lower our policy rate until we are certain that inflation is falling sustainably towards 2 percent,” he added. “Given the strength of the economy and the progress made on inflation so far, we have time to let the incoming data guide our policy decisions.”

The remarks come a week after the Federal Interest Rate Setting Committee again voted to keep benchmark short-term borrowing rates stable. Additionally, the committee’s March 20 post-meeting statement included the qualifier “greater confidence” needed before making a reduction.

Markets generally expect the FOMC to begin easing policy this year, although they have had to recalibrate their outlook on the timing and size of the cuts as inflation has remained stubbornly high. Other economic variables, including the labor market and consumer spending, also held up, giving the Fed time to assess the current situation before taking action.

The Fed’s preferred measure of inflation, the Personal Consumption Expenditures Price Index, showed a 12-month rate of 2.5% for February, or 2.8% for the pivotal core measure that excludes food and energy. Virtually all other inflation indicators show rates above 3%.

“Recent numbers for job gains and inflation are higher than expected,” Powell said. “Recent data, however, does not significantly change the overall picture, which continues to be one of solid growth, a strong but rebalancing labor market, and inflation falling towards 2 percent over a year. sometimes bumpy road.”

Other Fed officials speaking this week made remarks consistent with the Fed’s patient approach.

Cleveland Fed President Raphael Bostic told CNBC on Wednesday that he thinks a single cut could be considered as prices for some major items have risen. San Francisco Fed President Mary Daly said three cuts was a “reasonable baseline” but stressed there were no guarantees, while Cleveland’s Loretta Mester also said Cuts would be likely later this year, while adding that long-term rates could be higher than expected. All three are FOMC voters.

Powell reiterated that decisions are made “meeting by meeting” and noted only that reductions would be “probably appropriate…at some point this year.”

Uncertainty over rates caused some consternation in markets, with stocks falling sharply earlier this week as Treasury yields rose. The market stabilized on Wednesday, but traders in the federal funds futures market again reassessed their rate expectations, casting doubt on a June decline as the market implied probability rose to around 54 % at any given time, according to CME Group data.

Along with his comments on rates, Powell spent time discussing the independence of the Fed.

As the presidential election campaign heats up, Powell stressed the importance of avoiding political questions.

“Our analysis is free from personal or political bias, serving the public,” he said. “We won’t always 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 long term – and nothing else.”

He also spoke of “mission drift,” particularly as it relates to some demand for the Fed to become involved in climate change issues and the preparations financial institutions are making for related events.

“We are not, and we do not seek to be, climate policy makers,” he said.