December 28, 2024

Fed Chairman Powell: Inflation confidence is down, but not as high as before

Federal Reserve Chairman Jerome Powell reiterated on Tuesday that inflation is falling more slowly than expected, which will keep the central bank on hold for an extended period.

Speaking at the Foreign Bankers Association’s annual conference in Amsterdam, the central bank chief noted that the rapid deflation that hit 2023 has slowed sharply this year and prompted a rethink on the direction of policy.

“We didn’t expect this to be a smooth road. But these (inflation numbers) are higher than I think anyone expected,” Powell said. “What this tells us is that we need to be patient and let restrictive policies work.”

While he expects inflation to fall this year, he noted that this has not happened so far.

“I do think the crux of the matter is keeping policy at current levels longer than expected,” he said.

However, he also reiterated that he does not expect the Fed to raise interest rates.

The Fed has kept its key overnight borrowing rate at a target range of 5.25%-5.5%. Although the ratio has been there since July, it is still the highest in 23 years.

“Based on the data we have, I think our next move is less likely to be to raise rates,” he said. “I think it’s more likely that we’ll keep policy rates on hold.”

Powell’s comments mirrored views he expressed at a press conference on May 1 following the most recent FOMC meeting.

The committee voted unanimously to keep interest rates unchanged and said there was “a lack of further progress” in getting inflation back to the Fed’s 2% goal despite 11 consecutive rate hikes.

Another round of dismal inflation data came out on Tuesday, with the Labor Department’s producer price index, which represents wholesale costs, rising 0.5% in April, higher than expected, driven by a surge in service prices.

While the index ostensibly pointed to further price pressures, Powell called the report “mixed” as some components showed an easing trend.

“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 of the data to really make a judgment on that,” he said.

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