Powell says conditions needed to cut rates likely to take longer to appear

Recent inflation data shows a lack of further progress on inflation, Fed chair says

Most recent data shows a lack of progress this year on reaching the Federal Reserve’s inflation goal, indicating that more time is needed before it can lower interest rates, Federal Reserve Chair Jerome Powell said Tuesday.

The Fed’s interest-rate committee has stressed this year that it needs greater confidence that inflation is coming down sustainably towards the 2% target before it will be appropriate to lower rates.

“The recent data have clearly not given us greater confidence and instead indicate that it’s likely to take longer than expected to achieve that confidence,” Powell said during an event sponsored by the Wilson Center.

Powell had never pointed to a specific meeting where rate cuts might start.

Financial markets had widely expected the first move to come in June, but, after the recent hot inflation readings, now sees the first cut coming in September, according to the CME FedWatch tool.

In his remarks, Powell noted that inflation has “declined quite significantly over the second half of last year.”

But he said inflation data released in the past week indicates that the 12-month annual inflation rate, as measured by the personal consumption expenditure index, is estimated to rise at a 2.8% annual rate in March, little changed from February, And shorter-term 3-month and 6-month, measures are likely to be even higher.

The Fed chair said if higher inflation persists, the Fed can maintain the current level of interest rates, in a range of 5.25%-5.5% “for as long as needed.”

The Fed has room to cut rates if the labor market unexpectedly weakens, he added.

The Fed believes the current level of rates is “restrictive” or putting downward pressure on demand, thus helping to cool inflation.

“Right now, given the strength of the labor market and progress on inflation so far, it is appropriate to allow restrictive policy further time to work and let the data and evolving outlook guide us,” Powell said.

“Come what may, we remain strongly committed to returning inflation sustainably over time to 2%,” he said.

The 10-year Treasury yield BX:TMUBMUSD10Y has risen to 4.678% in trading on Tuesday. This is up from 4.35% before the release of the March CPI data last week.