Powell says central bank needs "greater confidence" inflation is heading to 2% target
Federal Reserve chair Jerome Powell signaled Wednesday that the central bank will hold off on lowering interest rates until it sees clearer evidence that inflation is moving sustainably back toward the 2% target.
While acknowledging recent inflation data was higher than expected, Powell said: “We do not expect that it will be appropriate to lower our policy rate until we have greater confidence that inflation is moving sustainably down toward 2%.”
In a speech at Stanford University, the Fed chair reiterated his view that it will likely be appropriate to begin cutting rates “at some point this year,” assuming the economic outlook unfolds as officials anticipate. However, he stressed that policymakers have time to evaluate incoming data before making moves.
“Given the strength of the economy and progress on inflation so far, we have time to let the incoming data guide our decisions on policy,” Powell said. “If the economy evolves broadly as we expect, most FOMC participants see it as likely to be appropriate to begin lowering the policy rate at some point this year.”
The Federal Open Market Committee opted to keep interest rates unchanged at its last meeting, maintaining its stance for potential rate cuts later in the year. Powell emphasized that the decision regarding rate cuts hinges on incoming economic data and reiterated the Fed’s commitment to monitor developments closely.
Powell’s remarks suggest the Fed is unlikely to lower rates at its next meeting on April 30 to May 1. They reinforce his stance that the central bank remains data-dependent and sees no urgency to cut rates imminently.
“Powell still sounds dovish since the jump in inflation earlier this year might be a blip rather than a new trend,” Nationwide Mutual Insurance chief economist Kathy Bostjancic told Bloomberg. “His comments support our view that a June rate cut is on the table, but we need to see softening in inflation readings starting with the March readings.”
Regarding employment, Powell emphasized the importance of the monthly employment report, which is expected to be released soon, in gauging the health of the labor market.
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Powell also highlighted the role of supply-side factors in the inflation recovery, expressing optimism about potential further gains. However, uncertainties remain about the persistence of these factors in alleviating price pressures.
“Our analysis is free from any personal or political bias in service to the public,” Powell said. “We will not always get it right — no-one does. But our decisions will always reflect our painstaking assessment of what is best for our economy in the medium and longer term — and nothing else.”
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