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Federal Reserve Chairman Jerome Powell said it will likely take “longer than expected” for inflation to return to the central bank’s 2% target and interest rate cuts are justified. Ta.
“We told the (Federal Open Market Committee) that we need to have greater confidence that inflation is on a sustained path toward 2% before policy easing is appropriate,” Powell said on Tuesday. “He said,” he said.
“Recent (inflation) data clearly does not give us much confidence and instead indicates that it is likely to take longer than expected to achieve that confidence.”
The Fed chief made the remarks after global markets subdued expectations for rate cuts, sparking a sharp selloff on Wall Street on Monday. The effects were felt around the world on Tuesday, with European stock exchanges suffering their worst day in nine months and Asian currencies falling against the dollar.
European stock markets recovered slightly on Wednesday, and U.S. stock futures also rallied ahead of the start of trading.
The Fed had previously said it intended to cut interest rates this year from a 23-year high of 5.25% to 5.5%, but the timing of its first action is now uncertain as the U.S. economy continues to show signs of strength. The timing of interest rate cuts is under discussion, and the timing for a rate cut is over 2020. -Expected inflation.
Last week, market expectations for the Fed to cut interest rates as early as June faded after the U.S. consumer price index showed higher-than-expected inflation in March. Investors now expect the first steps to be taken by September, but a growing minority expects there will be no more than one rate cut this year. Bets on just one cut rose after Chairman Powell’s comments.
Although the Fed’s target is tied to another measure of inflation, namely personal consumption spending, Powell also said that core PCE, which excludes volatile food and energy costs, was 2.8%, little changed in March from February. He pointed out that there is a high possibility that there will be no.
The Fed chair added that the annualized rate for the past three and six months is “actually above that level.”
The comments highlight the growing divergence between the Fed and other major central banks’ interest rate expectations.
European Central Bank President Christine Lagarde said early Tuesday that barring a major shock from the Middle East or other geopolitical hotspots, the euro zone currency’s guardian remained on track to cut interest rates “in a fairly short period of time.” He said there was.
The ECB is widely expected to cut interest rates in June.
Lagarde said she would “deinflationary” in line with the ECB’s forecast, which is confident that eurozone inflation will reach its 2% target by the middle of next year, even though the path is likely to be “bumpy”. We are observing the process.”
“Barring a major shock to development, we will be heading to a point in the fairly short term where we will have to ease the restrictive monetary policy that we have had so far,” he told CNBC.
Both central banks have sharply raised interest rates in 2022 and 2023 to curb the worst inflation in a generation. However, the strength of the US economy means that price pressures remain stronger than in Europe.
While inflation rates have fallen rapidly from multi-decade highs on both sides of the Atlantic, euro zone indicators have continued to decline in recent months as U.S. data has edged up.
The US economy is also expected to expand by 2.7% this year, while the euro zone’s growth is 0.8%.
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While Powell acknowledged that the U.S. economy’s performance had been “very strong,” he said the country’s hot labor market was “moving toward a better balance” and that wage growth was now “moderating.” ‘ he claimed.
U.S. Treasury bonds sold off early Tuesday, pushing yields higher on the day. The interest rate-sensitive two-year bond yield briefly exceeded 5%, but fell to 4.97% in mid-afternoon trading.
“Are we ever going to get to a point where we have to think about raising[rates]? I don’t think that’s going to happen in the near future,” said Stephen Blitz, chief U.S. economist at TS Lombard.
Additional reporting by George Steer in New York and Martin Arnold in Frankfurt
