Powell Remains Commit to Lowering Inflation and Will Not Shift Stance Too Early

The US Federal Reserve does not expect it will be appropriate to reduce policy rate until the central bank has greater confidence in inflation moving sustainably toward the 2% target, stated the prepared remarks of Fed’s Chair Jerome Powell for his testimony to Congress on Wednesday as seen by an anonymous source.


Part of the remarks read;

“While inflation remains above the Federal Open Market Committee’s (FOMC) objective of 2%, it has eased substantially, and the slowing in inflation has occurred without a significant increase in unemployment. As labor market tightness has eased and progress on inflation has continued, the risks to achieving our employment and inflation goals have been moving into better balance.

The FOMC is strongly committed to returning inflation to its 2% objective. Restoring price stability is essential to achieve a sustained period of strong labor market conditions that benefit all.  

Although the jobs-to-workers gap has narrowed, labor demand still exceeds the supply of available workers. The strong labor market over the past two years has also helped narrow long-standing disparities in employment and earnings across demographic groups. 

We believe that our policy rate is likely at its peak for this tightening cycle. If the the economy evolves broadly as expected, it will likely be appropriate to begin dialing back policy restraint at some point this year. But the economic outlook is uncertain, and ongoing progress toward our 2% inflation objective is not assured.

The Committee does not expect that it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2%.

We remain committed to bringing inflation back down to our 2% goal and to keeping longer-term inflation expectations well anchored.”

Despite the clouded timeline for policy rate reduction from the Chairman, the market still gave the probability for the first rate cut to remain in June with a roughly 57% chance for a 25bps cut. The next four meetings after June only have around 30-40% chance for another rate cut at each meeting for a quarter percentage point.