Powell Stresses Continued Concerns Over Inflation and Unlikelihood of Near-Term Rate Cuts

Federal Reserve Chair Jerome Powell emphasized on Tuesday that despite the overall strength of the U.S. economy, inflation has yet to reach the central bank’s target, indicating that interest rate cuts are unlikely in the near future.

During a discussion at a policy forum focused on U.S.-Canada economic relations, Powell acknowledged positive indicators such as solid growth and a robust labor market. However, he highlighted the persistent challenge of inflation not returning to the desired 2% level, thereby suggesting that current monetary policy settings should be maintained.

Powell reiterated that the Federal Reserve is inclined to keep the existing policy stance until inflation shows more substantial progress towards the target level, aligning with recent statements from the central bank officials.

In response to elevated inflation levels reported in the first quarter of 2024, with the consumer price index for March standing at a 3.5% annual rate, Powell articulated that more time might be required to achieve the desired level of confidence in addressing inflation dynamics.

Given the continued inflation concerns, Powell indicated that the Federal Reserve is prepared to uphold the current policy measures for as long as necessary to navigate potential risks effectively.

Following Powell’s remarks, treasury yields climbed, with the 2-year note briefly surpassing 5% and the 10-year yield advancing by 3 basis points. The S&P 500 experienced fluctuations post-Powell’s comments, briefly slipping into negative territory before recovering.

Powell also referenced the personal consumption expenditures price index, the Federal Reserve’s preferred inflation metric, which showed core inflation at 2.8% in February and has displayed limited fluctuations in recent months.

The Bank of America wrote in a note that the majority of investors now see two rate-cuts this year.