Fed policy rate to stay at 2-decade high-mark, US inflation may not drop significantly in 2024: Powell

  • Powell said he felt it is unlikely that the Fed would raise interest rates again, restating the central bank will be patient and allow the current policy rate to have its full impact.

Written By Nikita Prasad
First Published14 May 2024
US Fed chief Powell described the monetary current policy as restrictive by several measures
US Fed chief Powell described the monetary current policy as restrictive by several measures

US Federal Reserve Chair Jerome Powell said on Tuesday, May 14, that he expects US inflation to resume declining through 2024 as it did last year, however, his confidence on lower inflation has lately dropped with the quick rise in prices during the first quarter. Powell says it will likely take more time than previously thought to attain confidence needed to lower the key interest rates.

During the event hosted by the Foreign Bankers’ Association in Amsterdam, Powell said, “I expect that inflation will move back down ... on a monthly basis to levels that were more like the lower readings that we were having last year.” "I would say my confidence in that is not as high as it was,'' added the Fed chief.

Also Read: US Q1 GDP: At 1.6%, US economy grows at slowest pace in 2 years, misses estimates on sharp uptick in core inflation

Still, Powell said he felt it unlikely that the Fed would raise interest rates again, restating as he did after the Fed's last meeting that the central bank will be "patient" and allow the current policy rate to have its full impact. "I don't think that it is likely based on the data we have that the next move that we make will be a rate hike," Powell said. "It is more likely ... we hold the policy rate where it is."

"We did not expect this to be a smooth road," Powell said. The Fed chief also described the monetary current policy as restrictive by “many, many measures” but noted that only time will tell whether interest rates are sufficiently high to bring inflation back to the central bank’s two per cent goal. 

US central bankers, including Powell, have expressed disappointment at the lack of inflation progress in the first quarter. Earlier this month, Fed policymakers maintained their benchmark policy rate unchanged at the 23-year high-mark to 5.25 to 5.50 per cent for the sixth straight meeting, a level that Powell said he was prepared to maintain “for as long as appropriate.”

Producer Prices

The producer price index (PPI), a measure of wholesale prices, topped all economists’ forecasts in April, a government report showed Tuesday. That said, several components from the report that feed into the calculation of the Fed’s preferred inflation gauge — the personal consumption expenditures (PCE) price index — were more mixed.

Also Read: US Fed to hold rates at 23-year high-mark until inflation cools, slows pace of balance sheet runoff: 5 key highlights

Powell described Tuesday’s report as mixed. The consumer price index (CPI) for April will be released Wednesday. Inflation, which peaked at 9.1 per cent in the summer of 2022, is forecast to slow to 3.4 per cent in tomorrow's report. The US economy continues to show resilience even with the Fed settling in with higher-for-longer rates. The non-farm payrolls have averaged 246,000 a month so far this year, and unemployment remains low. 

The April jobs report of US, however, did show some signs of moderation, with a slower pace of job growth and an unexpected tick up in unemployment. Powell described the labor market as very strong with signs of gradual cooling and re-balancing, in part driven by an increase in labor supply from immigration as well as an easing in demand. The US labor market is about as tight as it was before the COVID-19 pandemic in 2019, according to Powell.

 

With inputs from Reuters, Bloomberg

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HomeEconomyFed policy rate to stay at 2-decade high-mark, US inflation may not drop significantly in 2024: Powell

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