Source: Golden Ten Data

Federal Reserve Chairman Powell's speech later is his last public speech before the next meeting of the Federal Reserve. He may try to reconcile the US economy's bucking trend with official assessments that monetary policy is “restrictive” and that inflation may be falling. Powell will participate in a Q&A at 1:15 the next day.

In recent times, the Federal Reserve's two ideas have been questioned by non-agricultural, “horror data,” inflation, and other data. These data continue to challenge the Fed's expectations. At the beginning of this year, the Federal Reserve also believed that the economy was slipping towards the target of falling demand, slowing growth, and price increases close to 2%.

Just five weeks ago, Powell said in a US Senate committee that the Fed is “not far” from the confidence that inflation needed to cut interest rates, but since then, policymakers, investors, and external analysts have gradually lost some confidence in this outlook.

In a few days after Powell testified in Congress, futures contracts linked to the Federal Reserve's policy interest rate showed that the Federal Reserve may initially cut interest rates by 25 percentage points at the June 11-12 meeting, and will cut interest rates twice by the end of 2024.

According to data released on Monday, retail sales increased 0.7% in March, exceeding market expectations. After the report was released, Goldman Sachs economists raised the US economy's annual growth rate forecast for the first quarter from 2.5% to 3.1%. Some people think this is another reason why the Federal Reserve kept the benchmark policy interest rate unchanged. Michael Pearce, Deputy Chief American Economist at the Oxford Institute of Economics, wrote in a report:

“This is another clear sign that American consumers are resilient. We think it will keep the economy growing strongly this year and increase the risk that the Fed will postpone the first rate cut until after June. We still expect Fed officials to cut interest rates later this year, but this is because inflation will slow later this year, not because the Fed is worried that the economy will weaken drastically.”

“Patience” May Still Be the Federal Reserve's Slogan

When inflation fell rapidly last year, Powell was reluctant to announce victory in the fight against inflation, even though the Federal Reserve did say that the 5.25%-5.50% range was the highest level required for policy interest rates and laid the foundation for interest rate cuts beginning this year.

Federal Reserve officials said at the March 19-20 meeting that they still expect to cut the policy interest rate by 75 basis points by the end of 2024. Powell said at the time that the disappointing inflation data for January and February “did not really change the overall situation, that is, inflation gradually moved closer to 2% on a sometimes bumpy path.”

However, the bumps continued, so much so that at the March meeting, some officials feared that the tightest monetary policy in 25 years had not had the expected impact.

Since then, data shows that the number of people employed in non-farm payrolls increased sharply by 303,000 in March, the pace of rising consumer prices accelerated, and even low-income households continued to spend.

Policymakers say a strong economy is one reason they can wait to cut interest rates and ensure that inflation will return to decline.

The PCE price index used by the Federal Reserve to set inflation targets will be released next week. The data may improve slightly for policymakers to refer to at the April 30 to May 1 meeting. But even optimists don't expect this data to improve significantly. Chicago Federal Reserve Chairman Goulsby said on Friday:

“The last mile issue is a bit tricky, and progress is slowing as the Federal Reserve gets closer to its inflation target. If inflation doesn't go down, we're likely to keep our current limits for a long time.”

Editor/jayden