Federal Reserve Chairman Jerome Powell on Tuesday called for patience and said he was losing confidence in the outlook for lower inflation this year after key indicators came in better than expected.
The producer price index (PPI), which measures prices at the wholesale level, rose 0.5% last month, beating the Dow Jones estimate of 0.3%, indicating continued pressure on consumers.
The Fed will likely have to keep interest rates at their current levels, the highest in decades, for a longer period of time than initially expected, Powell said at the Association of Foreign Bankers’ annual meeting in Amsterdam. said.
“We expect inflation to decline on a monthly basis to levels close to last year’s lows,” Powell said.
Powell said his confidence is “not as high as it used to be” given that inflation in the first three months of the year was higher than expected, but there is still a chance the Fed will have to raise rates further. He expressed the view that it was low. Even if the prospects for rate cuts become uncertain.
“Based on the data we have, I think it’s unlikely that our next action will be to raise rates,” Powell said. “The Bank is likely to maintain the current policy interest rate.”
Investors continue to expect the first rate cut in September.
The Fed’s benchmark interest rate has remained steady in the 5.25% to 5.5% range since July, and officials have given little concrete guidance on whether they might cut rates this year.
After Chairman Powell’s remarks, the market remained mostly flat while awaiting the release of the April consumer price index on Wednesday.
Powell’s comments came just hours after the Bureau of Labor Statistics released data showing wholesale prices rose more than expected in April.
Core PPI, which excludes food and energy prices, also rose 0.5%, beating the Dow Jones estimate of 0.2%.
With trade services excluded from the core PPI, wholesale prices rose 0.4% last month.
Year-on-year, core PPI, which excludes trade services, rose by 3.1%, also the highest in a year.
The wholesale inflation rate in April rose 2.2% year-on-year, the highest level in a year.
Asked about the latest PPI numbers, Powell said they were “mixed.”
“The latest data tells us we need to be patient and hope that restrictive policies are effective,” Powell said.
Chairman Powell said he expects growth to continue and job creation fueled by immigration to continue.
He said he expects economic growth this year to be about 2%, slightly higher than the Fed’s forecast for the economy’s potential, as the labor market remains “very, very strong.”
The unemployment rate has been below 4% for more than two years, and Powell said, “If you look at the broader data…the labor market is about as tight as it was before the pandemic in 2019, and that’s a good thing.” .
The low unemployment rate and rising wages seen in 2019 have previously been cited by Powell as a test for the Fed.
Powell said the outlook for inflation to fall again without a significant economic slowdown was all boosted by the arrival of immigrants who helped fill the surplus of vacant jobs and contributed to the U.S. economy as consumers. .
“We still have a significant number of people coming into the country and going to work,” Powell said. “Immigration is not a policy that the Feds are committed to or have an opinion on, but I’m just giving you the economics of it straight. People come…they get work permits, they get work permits, they get work permits. There are millions of people who go to work, pay taxes and generate economic output.”
with post wire
