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On US Federal Reserve Chair Jerome Powell expressed expectations that US inflation will resume its decline throughout 2024, similar to last year. However, his confidence in lower inflation has diminished due to the rapid rise in prices during the first quarter. Powell indicated that achieving the confidence necessary to lower key interest rates will likely take longer than previously anticipated.
Speaking at an event hosted by the Foreign Bankers’ Association in Amsterdam, Powell stated, “I expect that inflation will move back down on a monthly basis to levels more like the lower readings we saw last year.” He added, “My confidence in that is not as high as it was.”
Despite this, Powell noted it is unlikely that the Fed will raise interest rates again soon. He reiterated the central bank’s stance of being “patient” and allowing the current policy rate to have its full impact. “I don’t think that it is likely based on the data we have that the next move that we make will be a rate hike,” Powell said. “It is more likely we hold the policy rate where it is.”
“We did not expect this to be a smooth road,” Powell remarked. He described the current monetary policy as restrictive by “many, many measures” but acknowledged that only time will reveal if the interest rates are high enough to bring inflation back to the Fed’s two percent goal. Powell and other US central bankers have expressed disappointment with the lack of inflation progress in the first quarter. Earlier this month, Fed policymakers kept their benchmark policy rate unchanged at the 23-year high of 5.25 to 5.50 percent for the sixth consecutive meeting, a level Powell said he was prepared to maintain “for as long as appropriate.”
Regarding producer prices, the producer price index (PPI), which measures wholesale prices, exceeded all economists’ forecasts in April, according to a government report on Tuesday. Several components of this report contribute to the calculation of the Fed’s preferred inflation gauge — the personal consumption expenditures (PCE) price index — which showed mixed results. Powell described Tuesday’s report as mixed. The consumer price index (CPI) for April is set to be released on Wednesday, with inflation, which peaked at 9.1 percent in the summer of 2022, forecasted to slow to 3.4 percent.
The US economy continues to show resilience despite the Fed’s higher-for-longer rates. Non-farm payrolls have averaged 246,000 per month so far this year, and unemployment remains low. However, the April jobs report revealed some signs of moderation, including a slower pace of job growth and a slight increase in unemployment. Powell characterized the labor market as very strong but noted signs of gradual cooling and re-balancing, partly due to increased labor supply from immigration and easing demand. He pointed out that the US labor market is as tight as it was before the COVID-19 pandemic in 2019.
