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Inflation expected to have slowed slightly in April

The White House and Wall Street will be closely watching Wednesday’s inflation report for any signs that the Federal Reserve’s aggressive cooling efforts are paying off.

After falling dramatically over the past year, inflation has accelerated in recent months. Recalcitrant prices forced the Fed to postpone much-anticipated interest rate cuts, leaving borrowing rates high for everything from credit cards to mortgages.

Economists expect prices to have risen 3.4% in April from a year ago, which would mark a slight slowdown from the previous month.

Price growth has slowed significantly from a peak of around 9%, but inflation remains more than a percentage point above the Federal Reserve’s 2% target rate.

Soaring housing and gasoline prices earlier this year helped prolong the country’s period of high inflation. At the same time, economic performance has been strong, boosting consumer demand and putting upward pressure on prices.

In response to rising prices, the Fed decided earlier this month to hold interest rates steady for the sixth time in a row, keeping them at a level last seen in 2001. For now, the Fed has all but abandoned its previous forecast by three-quarters of a point. rate cuts this year.

Speaking at a financial conference in Amsterdam on Tuesday, Fed Chairman Jerome Powell said inflation had remained higher than expected, prompting the central bank to keep interest rates high .

“We didn’t expect this to go smoothly,” Powell told attendees at an annual gathering of the Foreign Bankers Association. “But those (inflation numbers) were higher than we expected, I think. What this tells us is that we will have to be patient and let the restrictive policies do their job.”

PHOTO: Federal Reserve Chairman Jerome Powell answers a question on stage during a meeting of the Economic Club of Washington, at the Renaissance Hotel in Washington, DC, February 7, 2023.

Federal Reserve Chairman Jerome Powell answers a question on stage during a meeting of the Economic Club of Washington, at the Renaissance Hotel in Washington, DC, February 7, 2023.

Amanda Andrade-Rhoades/Reuters

In theory, high borrowing costs weigh on consumer and business spending, slowing the economy and reducing demand.

In recent months, the economy has shown signs of slowing. A worse-than-expected jobs report this month showed employers hired 175,000 people in April, a significant decline from the previous month.

The disappointing jobs report sent the stock market higher as investors interpreted it as an indication that the Fed might revive its plans to cut interest rates.

Gross domestic product, a measure of all goods and services produced in the economy, grew 1.6% annually in the first three months of the year, the Commerce Department said last month. This figure marks a marked slowdown from the annual rate of 3.4% measured during the final quarter of last year.

Despite the slowdown, economic production and hiring remain strong. The wave of stubborn price increases only lasted a few months.

The outlook for prices defies easy predictions, Powell said Tuesday in Amsterdam.

“Will inflation be more persistent in the future? Powell said. “I don’t think we know yet.”

“I think we need more than a quarter of data to really make a judgment on this,” he added.

ABC News

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