Federal Reserve Chairman Jerome Powell reiterated on May 15 that inflation is falling more slowly than expected, which will force the Fed to maintain its current stance on monetary policy for a while longer. Speaking at the annual conference of the Foreign Bankers Association (FBA) in Amsterdam, the Netherlands, Powell stressed that the rapid pace of disinflation that took place in 2023 has slowed significantly this year, causing the Fed to rethink the path of monetary policy.
“We didn’t expect this to be a smooth road. But the recent inflation numbers have been higher than I think anyone expected. That tells us that we’re going to have to be somewhat patient and let monetary policy take effect,” the head of the world’s most powerful central bank said. Powell said he still expected inflation to decline over the rest of the year, but that hasn’t happened yet. “I think it’s really a matter of keeping monetary policy in place for a little longer than what was expected,” the Fed chief said.
However, Mr. Powell also reiterated his view that the Fed does not think it will have to raise interest rates further. The Fed's most recent rate hike, in July of last year, was also the 11th consecutive rate hike since the tightening cycle began in March 2022. Since that last hike, the fed funds rate - the Fed's operating rate - has been maintained at 5.25-5.5%, the highest level in more than 23 years. "I don't think the next move is likely to be a rate increase, based on the data that we have. I think it's more likely that we will have to maintain rates at their current levels for a period of time," Mr. Powell said.
The market is still betting on the Fed to cut interest rates for the first time in September, and is betting on one or two more cuts this year. The Fed Chairman’s remarks in this appearance were no change from the views he gave at a press conference on May 1, after the Fed’s two-day monetary policy meeting. At that time, Mr. Powell said that after a first three months of the year with higher-than-expected inflation, the Fed “will need more time than previously expected” to feel confident that inflation will continue to decline to 2%.
At its April 30-May 1 meeting, the Fed left interest rates unchanged and said policymakers saw “a lack of progress” in getting inflation to 21.3 percent. Tuesday brought disappointing new inflation data. The Labor Department’s producer price index (PPI) report, a measure of wholesale prices, showed a 0.51 percent increase in April from the previous month, driven largely by higher prices for services.
Commenting on the report, Mr. Powell said that on the surface, the PPI showed rising price pressures, but the components were mixed, with some sectors of the PPI basket showing easing price pressures. “Is inflation going to be more persistent in the near term? I don’t think we know that yet. I think we’ll need more than one quarter of data to be able to assess that,” he said.
Source: VnEconomy
