At 22:00 Beijing time on Tuesday, Federal Reserve Chairman Powell attended an event hosted by the Foreign Bankers Association in Amsterdam. His speech attracted market attention, particularly his views on inflation, because judging from time to time, Powell had already learned about the April CPI inflation report.

Powell said at the event that the Federal Reserve needs to wait patiently for more evidence that high interest rates are curbing inflation, and doubly emphasized the need to keep interest rates high for a longer period of time.

Powell said he expected the inflation rate to fall month by month, but the first-quarter inflation data weakened his confidence. He said that the current policy is restrictive in many aspects, but he pointed out whether the policy is restrictive enough to return inflation to the Fed's 2% target.

Powell said, “The lack of further progress in the US fight against inflation in the first quarter is remarkable. We don't expect this to be a smooth path, but the level of inflation has exceeded everyone's expectations.” “It tells us we need to be patient and let restrictive policies work,” he added.

In discussions led by Powell and ECB Governing Council member Claes Knott, Powell reiterated that the next step is unlikely to be to raise interest rates, and that the Federal Reserve is more likely to maintain policy interest rates at the current level.

Federal Reserve officials, including Powell, expressed disappointment with the higher-than-expected inflation data for the first quarter. Earlier this month, policymakers kept the benchmark policy interest rate unchanged at a 23-year high, and Powell said he was prepared to maintain this level “under appropriate circumstances.”

Prior to Powell's speech today, a government report released on Tuesday showed that the April Producer Price Index (PPI, a measure of wholesale prices) surpassed all economists' forecasts. However, several components of the report used to calculate the Federal Reserve's preferred inflation index (PCE) were mixed.

Powell described Tuesday's PPI report as “mixed.” Powell said, “I wouldn't say PPI data is very popular; I'd say it's a bit complicated.” “Federal Reserve microphone” Nick Timiraos also pointed out that the main impact of PPI on PCE data may be offset because lower ticket prices and health care costs may offset the hotter financial services segment.

The April Consumer Price Index (CPI) will be released on Wednesday. Economists surveyed by Bloomberg estimate that the US CPI growth rate for April will slow to 3.4% year-on-year. The basic model shows that tomorrow's CPI data will be in line with expectations. Even so, another blogger, Simon White, warns that there is still a possibility of any unexpected situation in the market.

Although the Federal Reserve has maintained high interest rates for a long time, the US economy has shown resilience. So far this year, the average number of people employed in non-farm payrolls has increased to 246,000 per month, and the unemployment rate is still low. However, the April employment report did show some signs of slowing down. The pace of employment growth has slowed, and the unemployment rate has unexpectedly risen.

In response, Powell called the labor market “very strong,” and there are signs that the labor market is gradually cooling down and rebalancing, partly due to an increase in the labor supply due to the increase in the number of immigrants. He also said that the level of tension in the labor market is about the same as before the outbreak of the epidemic in 2019. Powell said in recent weeks that if the labor market weakens unexpectedly, the Federal Reserve may cut interest rates.

Editor/Jeffrey