Powell suggests interest rates could stay high for a longer period | Trending Viral hub

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The Federal Reserve is likely to wait longer than initially expected to cut interest rates, given stubborn inflation readings in recent months, the central bank’s two top officials said on Tuesday.

Officials looked to 2024 for evidence that inflation was continuing to cool rapidly, as it did late last year. Instead, progress on inflation has stalled or even reversed by some measures.

“Recent data clearly have not given us greater confidence and instead indicate that it will likely take longer than expected to achieve that confidence,” Jerome H. Powell, chairman of the Federal Reserve, said at an event in Washington on Tuesday.

In a separate speech Tuesday, Philip N. Jefferson, vice chairman of the Federal Reserve, also said the central bank should be prepared to delay rate cuts if inflation remains high. “While we have seen considerable progress in reducing inflation,” Jefferson said in a speech at a Federal Reserve research conference in Washington, “the task of sustainably restoring 2 percent inflation is not yet complete.” finished.”

Federal Reserve officials indicated in December that they expected to cut rates three times by the end of 2024, and maintained that forecast last month despite higher-than-expected inflation readings to start the year. Powell and Jefferson did not back away from that forecast Tuesday, but they also did not reiterate it.

Investors have closely monitored Fed officials in recent weeks for any sign of a change of heart on when rate cuts might begin. When the year began, Wall Street analysts expected officials to begin cutting rates in quarter-point increments as early as this spring. That’s because annual inflation had been falling steadily from a high of around 9 percent to around 3 percent, approaching the Federal Reserve’s target.

But since then progress on inflation has slowed. Annual inflation, measured by the Consumer Price Index, rose to 3.5 percent in March. The price index for personal consumption expenditures, the Federal Reserve’s preferred measure, rose 2.7 percent in February from a year earlier.

As a result, investors have repeatedly pushed back their estimates for when the first rate cut will occur. Almost no one expects the Federal Reserve to take action at its next meeting in two weeks, and most investors don’t anticipate a cut in June either. Investors now view a cut at the central bank’s July meeting as a coin toss, with many expecting the Fed to wait until September or perhaps even longer.

Other economic indicators have stayed strong. Job growth has consistently exceeded expectations, the unemployment rate has remained low, and consumer spending has shown resilience. That has given policymakers confidence that they can keep interest rates higher without threatening to cause a recession.

“At this point, given the strength of the labor market and the progress on inflation so far, it is appropriate to give tightening policy more time to work and let the data and the evolving outlook guide us,” Powell said. , noting that the Federal Reserve has the flexibility to cut rates if the labor market weakens unexpectedly.

At the same time, Powell said he sees signs that the labor market is rebalancing and that the forces that contributed to rapid inflation continue to ease. Mr. Jefferson agreed.

“My basic outlook remains that inflation will continue to decline, with the policy rate remaining stable at its current level, and that the labor market will remain strong, and labor demand and supply will continue to rebalance,” Jefferson said.

“Of course,” he added, “the outlook remains quite uncertain, and if incoming data suggests that inflation is more persistent than I currently expect, it will be appropriate to maintain the current restrictive policy stance for longer.” .”

Joe Renison contributed reports.

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