Federal Reserve Chairman Jerome Powell reiterated that the Fed is in no rush to cut interest rates as policymakers await more evidence that inflation is under control.
Powell said at a San Francisco Fed event on Friday:
"The fact that the U.S. economy is growing at such a solid pace and the labor market remains very, very strong gives us an opportunity to be more confident that inflation is coming down before taking the important step of cutting interest rates."
He said the latest inflation data released earlier, the February PCE, was "broadly in line with our expectations." But Powell reiterated that a rate cut would not be appropriate until officials are sure inflation is heading toward 2%. They believe that an inflation rate of 2% is appropriate for a healthy economy.
Investors are now betting that the Fed will cut interest rates for the first time in June. Government data released on Friday showed that the Fed's preferred measure of underlying inflation, the PCE, cooled last month. Core PCE rose 0.3% in February after rising 0.5% in January. The gauge is up 2.8% from a year ago and remains above the Fed's 2% target.
Veronica Clark, an economist at Citigroup, said: "Overall, the information has not changed much. The February inflation data seems to be in line with their expectations, which is consistent with other data that they think is acceptable. They now "The pattern is to wait for confidence to improve a little bit and look at a few more months of data and they will still be willing to cut rates mid-year."
"It's nice to see some things coming in line with expectations," Powell said of the data, adding that the latest numbers weren't as good as what policymakers saw last year.
Powell said officials expect inflation to continue declining on a "sometimes bumpy path," echoing remarks he made after the Fed's FOMC meeting earlier this month. Powell said at the time that it might be appropriate for the Fed to ease policy "at some point this year." But he and other policymakers made clear they were cautious about a first rate cut, given the underlying strength of the economy and recent signs of sustained price pressures.
Powell also said on Friday that he did not think the likelihood of a recession had increased at this time. However, he reiterated that if the job market weakens unexpectedly, Fed officials may respond with policy.
Overall, U.S. inflation has eased sharply from a 40-year high in 2022, with a particularly sharp deceleration last year. That progress appears to have stalled in January and February, with consumer price growth picking up. Meanwhile, the U.S. economy remains resilient despite high interest rates. Inflation-adjusted consumer spending in February was higher than all economists expected, and employers are still hiring strongly. Earlier data showed that U.S. economic growth was stronger than expected in the fourth quarter of last year.
While the median forecast among Fed officials for three rate cuts this year remained unchanged from December, nearly half expect two or fewer cuts in 2024. Most policymakers say they want to see further evidence that inflation is retreating toward their 2% target before taking the first step.
Fed Governor Waller said last Wednesday that disappointing inflation data since the beginning of the year means policymakers may need to keep interest rates high for longer than previously expected and may even need to reduce the total number of interest rate cuts. Waller was among the first to support rapid interest rate hikes to stem price pressures.
But Powell and some of his other colleagues have said they don’t need to see inflation reach their goals to start cutting rates. With inflation falling, high interest rates are weighing more heavily on the economy, and some policymakers think rates may need to be cut sooner to avoid hurting the labor market too much.
“The Fed is highly data dependent right now and needs to see better inflation data in the coming months,” said Matthew Luzzetti, chief U.S. economist at Deutsche Bank. “It’s widely expected that the inflation data will improve, but until the data is released, we either get confirmation or a different view on the data, and it’s hard to tell exactly where we’re going to end up from a Fed policy perspective.”
Last Friday coincided with the Easter holiday, and the market did not react to the PCE report and Powell's speech. On Monday (April 1), spot gold opened higher, reaching a maximum of $2,243.22 per ounce, setting another record high. However, as of press time, spot gold has failed to stabilize at the 2240 mark.
Article forwarded from: Golden Ten Data
