The good news is that the Fed is apparently not considering raising rates as some have feared. The bad news is that it is in no hurry to lower them either. This is according to Federal Reserve Chair Jerome Powell who spoke publicly yesterday for the first time since the recent higher-than-expected CPI numbers – the third consecutive month in which the reading surpassed expectations. Many in the market had already come to the conclusion that the Fed would hold off on its promised interest rate cuts but Powell has made it official.
“The recent data have clearly not given us greater confidence and instead indicate that it is likely to take longer than expected to achieve that confidence,” Powell said at an event in Washington, DC. Powell also indicated that the Fed wasn’t considering rate increases. Instead, he said that rates would stay at their current level “as long as needed” and that the Fed would cut rates if the economy was slowing sharply.
“Right now, given the strength of the labor market and progress on inflation so far, it’s appropriate to allow restrictive policy further time to work,” he said.
Last December Fed officials said that they expected to cut rates three times by the end of 2024. Powell did not back off from that promise but he did not repeat it either in his remarks.
Nor did Philip N. Jefferson, the Fed’s vice chair, who gave a separate speech on Tuesday in which he said the Fed should be prepared to delay rate cuts until inflation moderates. “While we have seen considerable progress in lowering inflation, the job of sustainably restoring 2 percent inflation is not yet done,” he said.
Assuming the Fed will now need to see several months of declining inflation readings, at best rate cuts will be delayed until later in the year. The Fed’s caution also throws into doubt its ability to navigate a soft landing for the economy.
More data will be available next week when the Commerce Department releases personal consumption expenditures, or PCE, which is the Fed’s preferred inflation gauge. It is likely to show core prices rose 2.8% in March from a year earlier, according to estimates by Fed economists, the Wall Street Journal reported.