- Powell acknowledged that inflation has been higher than expected, indicating the need for patience and allowing restrictive policy to work.
- He stated that the Fed is unlikely to raise rates further based on the current data, and it is more likely that rates will remain at the current level.
- Despite recent higher-than-expected inflation data, Powell believes it is too early to determine if inflation will be more persistent going forward, requiring more than a quarter’s worth of data to make a judgment.
Federal Reserve Chair Jerome Powell reiterated Tuesday that inflation is falling more slowly than expected, likely keeping interest rates elevated for an extended period.
Powell’s Comments in Amsterdam
Speaking at the annual general meeting of the Foreign Bankers Association in Amsterdam, Powell noted that the rapid disinflation that happened in 2023 has slowed considerably this year and caused a rethink of where policy is headed.
“We did not expect this to be a smooth road. But these inflation readings were higher than I think anybody expected,” Powell said. “What that has told us is that we’ll need to be patient and let restrictive policy do its work.”
While he expects inflation to come down through the year, he noted that hasn’t happened so far. “I do think it’s really a question of keeping policy at the current rate for longer than had been thought,” he said.
However, Powell also repeated that he does not expect the Fed to be raising rates.
Outlook on Future Rate Hikes
“I don’t think that it’s likely based on the data that we have that the next move that we make would be a rate hike,” Powell said. “I think it’s more likely that we’ll be at a place where we hold the policy rate where it is.”
Markets vacillated as Powell spoke around 10 am ET and major averages were near breakeven approaching noon ET. Treasury yields edged lower and futures traders slightly raised the market-implied probability of the Fed’s first rate cut coming in September.
April Inflation Data
Powell’s comments mirrored sentiments he expressed during his May 1 news conference after the most recent Federal Open Market Committee meeting.
Tuesday brought a fresh round of discouraging inflation data when the Labor Department’s producer price index, a proxy for wholesale costs, rose a higher-than-expected 0.5% in April on the back of a surge in services prices.
Though the index on its surface indicated further price pressures, Powell called the report “mixed” as some of the components showed easing movement.
“Is inflation going to be more persistent going forward? I don’t think we know that yet. I think we need more than a quarter’s worth of data to really make a judgement on that,” he said.
Conclusion
In summary, Powell reiterated that inflation is proving sticky and the Fed will need to keep interest rates elevated for longer than previously thought. While he doesn’t expect further hikes, the path of inflation remains uncertain.
