Source: Wall Street News
Powell said that the Federal Reserve expects inflation to continue to fall “on a bumpy path,” or else it may maintain high interest rates for a longer period of time. An unexpected weakness in the labor market may prompt a policy response from Federal Reserve officials, but he said he sees no increase in the possibility of a recession at the moment.
Federal Reserve Chairman Jerome Powell reiterated in his speech at the San Francisco Federal Reserve on Friday that the Federal Reserve is in no hurry to cut interest rates.
Powell said the latest core PCE inflation figures released earlier on Friday were “largely in line with our expectations.” But Powell reiterated that it would be inappropriate to lower interest rates until officials are confident that inflation is moving towards their 2% target.
“It's good to see that some data is in line with expectations,” he said, adding that the latest data isn't as good as last year, so more “positive” inflation data is still needed.
Inflation is expected to continue to fall “bumpy” or else interest rates may remain high for a longer period
According to the data, the core PCE inflation index preferred by the Federal Reserve cooled down last month, after the increase in PCE in January far exceeded expectations. Excluding fluctuating food and energy costs, the core PCE index rose 0.3% month-on-month in February, compared with a 0.5% month-on-month increase in January, the biggest “back-to-back” increase in a year.
Powell said that the Federal Reserve expects inflation to continue falling “on a bumpy path,” which echoes his remarks after the Federal Reserve's last policy meeting earlier this month. At the time, the Federal Reserve decided to stay on hold, and the vast majority predicted that interest rates would be cut three times in 2024. Powell said at the time that it “may be appropriate” to relax the policy at some point this year. But he and other policymakers have made it clear that, given the underlying strength of the economy and recent signs of continuing price pressure, they are in no hurry to do so.
Powell said that the Federal Reserve can and will be cautious about the decision to cut interest rates. He said that the US economy is showing strong performance. Currently, there is no need to rush to cut interest rates. The Federal Reserve hopes to cut interest rates after being more confident, and further data in the future will show whether the recent rebound in inflation is only a temporary rebound. If inflation does not decline, the Federal Reserve can maintain interest rates for a longer period of time. He doesn't think interest rates will fall to the level before the outbreak of the pandemic; the current interest rate level has not harmed the US economy.
The probability of a recession in the US economy is not high, and there is a chance of a soft landing
Powell said that as far as the Federal Reserve's two major policy missions are concerned with promoting employment and curbing inflation, if one is far from the target, it should focus on this one. He said that employment and inflation targets are at risk at the same time. If the job market unexpectedly weakens, the Federal Reserve will respond in a timely manner.
However, Powell believes that the probability of an economic recession in the US is not high, and there is no reason to think that the US economy is already on the verge of recession. He said that the Federal Reserve's mission has not yet been completed; the goal is still to achieve a 2% inflation rate, and the Fed has an opportunity to calm inflation without harming the economy. Under the current timing, it is impossible to cut interest rates outside of the cycle.
US inflation has decelerated markedly from the 40-year high it reached in 2022, and decelerated particularly rapidly last year. However, in January and February of this year, as consumer price growth accelerated, this progress seemed to stall.
Meanwhile, despite high interest rates, the US economy remains resilient. Inflation-adjusted consumer spending in February exceeded expectations, and employers are still hiring workers at a strong rate. Data released earlier this week showed that economic growth in the fourth quarter was stronger than initially thought.
The Fed's interest rate cut expectations for this year have continued to be lowered. Although the median forecast of the Federal Reserve's three interest rate cuts this year remains the same as in December, nearly half predicted two or fewer interest rate cuts in 2024. Most Federal Reserve officials said they would like to see further evidence that inflation is falling towards their 2% target before taking the first action, and investors now expect this to occur in June.
Federal Reserve Governor Christopher Waller said on Wednesday that the disappointing inflation data at the beginning of the year meant that the Fed might need to keep interest rates higher than previously anticipated, and may even reduce the overall number of interest rate cuts.
However, Powell also said that the progress of inflation is expected to be uneven, and there is no need to necessarily reach the 2% target before interest rate cuts begin. As inflation falls, higher interest rates are putting more pressure on the economy. Some Federal Reserve officials believe that in order to avoid causing unnecessary damage to the labor market, it is appropriate to cut interest rates soon.
editor/tolk