Powell signals rate cut delay after run of surprises

If price pressures persist, Powell said, the Fed can keep rates steady for “as long as needed”. — Bloomberg

NEW YORK: US Federal Reserve (Fed) chairman Jerome Powell has signalled policymakers will wait longer than anticipated to cut interest rates following a series of surprisingly high inflation readings.

Powell pointed to the lack of additional progress made on inflation after the rapid decline seen at the end of last year, noting it will likely take more time for officials to gain the necessary confidence that price growth is headed towards the Fed’s 2% goal before lower borrowing costs.

If price pressures persist, he said, the Fed can keep rates steady for “as long as needed”.

“The recent data have clearly not given us greater confidence and instead indicate that it is likely to take longer than expected to achieve that confidence,” Powell said in a panel discussion alongside Bank of Canada governor Tiff Macklem at the Wilson Center in Washington.

“Given the strength of the labour market and progress on inflation so far, it is appropriate to allow restrictive policy further time to work and let the data and the evolving outlook guide us,” he said.

Powell’s remarks represent a shift in his message following a third straight month in which a key measure of inflation exceeded analysts’ forecasts.

It also shows officials see little urgency to cut rates and suggests that any reductions in 2024 may come relatively late in the year, if at all.

Policymakers narrowly pencilled in three interest rate cuts in forecasts published last month, but investors are now betting on just one to two cuts this year, futures markets showed.

The Federal Open Market Committee, the group of officials that sets interest rates, next meets on April 30 and May 1.

The US economy continues to surprise Fed officials with its resilience.

Employers added over 300,000 jobs in March – the most in nearly a year – and retail sales topped expectations.

That strength has coincided with a pickup in price pressures in 2024, raising concerns about a stall in progress towards the central bank’s inflation goal.

Earlier, Fed vice-chairman Philip Jefferson said he expected inflation would continue to moderate with interest rates at their current level, but persistent price pressures would warrant holding borrowing costs high for longer.

Richmond Fed president Thomas Barkin said some of the recent data has not “been supportive” of a soft landing. — Bloomberg