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Business News/ Economy / Fed need not be in hurry to cut rates, inflation data within expectations: Jerome Powell
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Fed need not be in hurry to cut rates, inflation data within expectations: Jerome Powell

Powell said earlier this month that it would likely be appropriate to ease policy ‘at some point this year.’ But policymakers have made clear that they are in no rush given the resilience of the economy

Federal Reserve Chair Jerome Powell speaks during a news conference. AP/PTI(AP12_15_2022_000022B) (AP)Premium
Federal Reserve Chair Jerome Powell speaks during a news conference. AP/PTI(AP12_15_2022_000022B) (AP)

US Federal Reserve Chair Jerome Powell said that the US central bank is in no hurry to cut interest rates and that the fresh inflation data released on Friday is 'pretty much in line with expectations'. Fed policymakers have made it clear that they are in no rush given the underlying strength and resilience of the US economy and recent signs of persistent price pressures.

Powell also reiterated it will not be appropriate to lower rates until policymakers are confident that inflation is on track toward the two per cent goal. Speaking at a conference at the Federal Reserve Bank of San Francisco, Powell said, “We don’t need to be in a hurry to cut," adding that he still expected "inflation to come down on a sometimes bumpy path to two per cent.'' 

Also Read: US inflation rises moderately at 0.3% in February, consumer spending jumps; Fed rate cuts on table

Powell in recent weeks has had to reconcile expectations that rate cuts will begin this year with data showing improvement in the inflation numbers had slowed to start the year. "We need to see more" progress on inflation before cutting rates, he said on Friday.

"The decision to begin to reduce rates is a very, very important one ... The economy is strong right now, and the labor market is strong right now. And inflation has been coming down. We can and we will be careful about this decision because we can be."

What US inflation data means for Fed

Powell spoke shortly after the Commerce Department's Bureau of Economic Analysis released data showing the Fed's favored inflation gauge rose at an annual rate of 2.5 percent in February, up 0.1 percentage points from a month earlier. The core personal consumption expenditures (PCE) price index — which excludes volatile food and energy costs — rose 0.3 per cent after climbing 0.5 per cent in January, marking its biggest back-to-back gain in a year.

Also Read: US Q4 GDP: US economy grows 3.4% YoY in October-December driven by consumer spending, high exports

“It’s good to see something coming in in line with expectations," Powell said of the data, adding that the latest readings aren’t as good as what policymakers saw last year. Powell said that it would likely be appropriate to ease policy “at some point this year,'', echoing remarks he made following the Fed’s last policy meeting last week, where a narrow majority penciled in three rate cuts for 2024.

In the March meeting, Fed policymakers left the headline inflation forecast unchanged, but slightly raised the outlook for annual so-called "core" inflation -- which excludes energy and food prices -- to 2.6 per cent. The Fed is expected to hold rates steady, as it has since July 2023, at its April 30-May 1 policy meeting.

Fed's rate hike cycle

The Fed had responded to record-high inflation by aggressively raising its benchmark rate beginning in March 2022. Eventually, it raised its key rate 11 times to a 23-year high of around 5.4 per cent. The resulting higher borrowing costs helped bring inflation down — from a peak of 9.1 per cent in June 2022 to 3.2 per cent last month. 

Also Read: US Fed keeps benchmark rates steady at 23-year high-mark, projects 3 rate cuts in 2024: 5 key highlights

But year-over-year price increases still remain above the Fed's two per cent target. Inflation has eased substantially from a 40-year peak reached in 2022, decelerating at a particularly fast clip last year. That progress appeared to stall in January and February, with a pickup in consumer price growth.

Governor Christopher Waller, an early proponent of raising rates high and fast to contain price pressures, said that disappointing inflation data from the start of the year means policymakers may need to keep rates elevated for longer than previously thought or even reduce the overall number of rate cuts.

US economy resilient to high borrowing rates

The US economy has remained resilient despite high interest rates. Thursday's data showed that the US gross domestic product (GDP) grew at a 3.4 per cent annualized rate in the fourth quarter (October-December 2023), up from 3.2 per cent estimates a month ago. The Q4GDP growth however, was sequentially lower when compared to Q3GDP which was pegged at 4.9 per cent. 

The Fed chief also said on Friday he does not see the possibility of a recession as elevated at this time. Still, he reiterated that an unexpected weakening in the labor market could warrant a policy response from Fed officials. Elevated rates put more pressure on the economy, and some policymakers reason it may be appropriate to lower them soon to avoid unduly harming the labor market.

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Published: 29 Mar 2024, 10:24 PM IST
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