Federal Reserve Chairman Jerome Powell reiterated Tuesday that inflation is falling more slowly than expected and will keep the central bank on hold for an extended period.
Addressing the annual general meeting of the Foreign Bankers Association in Amsterdam, the central bank chief noted that the rapid disinflation that occurred in 2023 has slowed significantly this year and has led to a rethinking of the direction politics.
“We didn’t expect it to go smoothly. But those (inflation numbers) were higher than I think we expected,” Powell said. “What this told us is that we will have to be patient and let the restrictive policies do their job.”
Although he expects inflation to fall over the course of the year, he noted that has not happened so far.
“I think it’s really about keeping politics at the current pace for longer than we thought,” he said.
However, he also reiterated that he did not expect the Fed to raise rates.
The Fed kept its overnight policy rate within a target range of 5.25% to 5.5%. Although the rate has been there since July, it is the highest level in 23 years.
“I don’t think it’s likely, based on the data we have, that the next action we take is to raise rates,” he said. “I think it’s more likely that we’ll get to a point where we keep the policy rate where it is.”
Markets wobbled as Powell spoke around 10 a.m. ET and the major averages were near break-even around noon ET. Treasury yields fell slightly and futures traders slightly increased the market’s implied probability of a first Fed rate cut in September.
Powell’s comments reflect sentiments he expressed following his May 1 press conference following the last meeting of the Federal Open Market Committee.
The committee voted unanimously to maintain interest rates while expressing that it had seen a “lack of further progress” in bringing inflation back to the Fed’s 2% target, despite a series of 11 interest rate increases.
Tuesday brought another round of discouraging inflation data, when the Labor Department’s producer price index, a gauge of wholesale costs, rose a higher-than-expected 0.5% in April, following a surge in the prices of services.
Although the index on its surface indicates further price pressures, Powell called the report “mixed” as some components showed slowing movement.
“Is inflation going to be more persistent in the future? (…) I don’t think we know yet. I think we need more than a quarter of data to really make a case judgment on this,” he said.
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