Fed recap: Chair Powell explains why the central bank isn’t ready yet to cut rates
The Federal Reserve held interest rates steady at their current range of 5.25% to 5.5%, but revised its outlook for rate cuts to just one in 2024. Central bank policymakers noted that there has been “modest further progress” toward its 2% inflation objective. Federal Reserve Chair Jerome Powell noted at the press conference that the central bank does not yet have the confidence to cut rates, even as inflation has eased from its peak levels.
Too soon to tell if Fed policy is ‘sufficiently restrictive,’ Powell says
The Federal Reserve’s restrictive stance on monetary policy is having the effect on inflation central bankers had hoped to see, Fed Chair Jerome Powell said Wednesday afternoon. But central bankers are still waiting to see sufficient progress, he added.
“The question of whether it’s sufficiently restrictive is going to be one we know over time,” Powell said. “But I think for the reasons I talked about at the last press conference and other places, I think the evidence is pretty clear that policy is restrictive and is having, you know, the effects that we would hope for.”
Powell has no ‘definitive answer’ on why Americans view economy so negatively
Federal Reserve Chair Jerome Powell said it is unclear why the sentiment of everyday Americans is so sour on the economy.
“I don’t think anyone … has a definitive answer why people are not as happy about the economy as they might be,” he said.
However, he did say there is a growing economy and strong labor market. While inflation ran high, he noted that the pace of price increases has come down “significantly.”
No one on the Fed committee has rate hikes in their base case, Powell says
Federal Reserve Chair Jerome Powell said no one on the committee has interest rate hikes in their base case.
“We think policy is restrictive. And we think, ultimately, that if you just set policy at a restrictive level, eventually you will see real weakening in the economy,” he said. “So, that’s always been the thought is that, you know, since we raised rates this far, we’ve always been pointing to cuts at a certain point.”
“Not to eliminate the possibility of hikes, but no one has that as their base case,” Powell said. “No one on the committee does.”
Powell says recent jobs data may be ‘a bit overstated’
Federal Reserve Chair Jerome Powell said the recent strong jobs data might be slightly “overstated,” indicating that benchmark revisions could be on the way.
″… There’s an argument that they may be a bit overstated, but still, they’re strong,” Powell said, referring to U.S. payroll reports. “We see gradual cooling, gradual moving toward better balance.”
Nonfarm payrolls expanded by 272,000 for the month of May, up from 165,000 in April and well ahead of the Dow Jones consensus estimate for 190,000.
The Fed does not yet have the confidence to lower rates, chief Powell says
Federal Reserve Chair Jerome Powell said the central bank does not yet have the confidence to start lowering interest rates, even after May’s consumer price index on Wednesday came in cooler than expected.
“We see today’s report as progress and as, you know, building confidence,” Powell said. “But we don’t see ourselves as having the confidence that would warrant beginning to loosen policy at this time.”
Powell: Projections include reactions to Wednesday’s CPI report
Powell said Fed members were given the chance to update their answers for the Summary of Economic Projections in light of this morning’s consumer price index report.
“We make sure people remember that they have the ability to update. We tell them to do that. … What’s in the SEP actually does reflect the data that we got today, to the extent you can reflect it in one day,” Powell said.
Fed needs more ‘good data’ on inflation, Powell says
Inflation data this year has not yet given the Federal Reserve “greater confidence” that it is moving closer to the 2% goal, according to Fed Chair Jerome Powell.
“We’ll need to see more good data to bolster our confidence that inflation is moving sustainably toward 2%,” he said.
In the Fed statement, central bank leaders acknowledged that there has been “modest” further progress on getting price growth down to 2%. Before, the Fed had said there was a “lack of” recent progress.
Higher prices are showing signs of easing, based on recent readings, Powell says
The most recent string of inflation readings is showing sign of cooling price pressures, according to Federal Reserve Chair Jerome Powell.
“The inflation data received earlier this year were higher than expected, though more recent monthly readings have eased somewhat,” Powell said Wednesday. “Longer-term inflation expectations appear well anchored.”
Inflation has ‘eased substantially’ but is still too high, Powell says
Inflation has eased substantially from its peak but remains too high, Federal Reserve Chair Jerome Powell said during his Wednesday press conference.
“Our economy has made considerable progress … the labor market has come into better balance with continued strong job gains and a low unemployment rate,” he said. “Inflation has eased substantially from a peak of 7% to 2.7%, but is still too high. We are strongly committed to returning inflation to our 2% goal in support of a strong economy that benefits everyone.”
The Fed is maintaining its restrictive stance on monetary policy, Powell added.
The Federal Reserve is ‘constrained to keep rates higher for longer,’ economist says
The Federal Reserve will likely keep interest rates elevated as it seeks sustainable progress toward its 2% inflation target, one economist said.
“There’s no denying the progress toward the Fed’s 2% target but the real debate is timeframe. Barring any exogenous shocks, the economy will slowly converge to the Fed’s target,” wrote Jeffrey J. Roach, chief economist at LPL Financial.
“Since parts of the economy are less sensitive to interest rates in this business cycle, the Fed is constrained to keep rates higher for longer,” Roach added.
Economy has made progress toward both Fed goals, Powell says
Federal Reserve Chair Jerome Powell began his news conference noting the U.S. economy has made progress toward both of the central bank’s goals: bringing inflation down to 2% and maximizing employment.
“Our economy has made considerable progress toward both goals over the past few years,” Powell said.
“The labor market has come into better balance, with continued strong job gains and a low unemployment rate. Inflation has eased substantially from [about] 7% to 2.7%. But it’s still too high,” he said.
One question for Powell: How did Wednesday’s CPI report factor into projections?
How much Wednesday’s consumer price index report factored into the Fed’s projections is one of the items traders will be looking for from Chair Jerome Powell’s press conference, according to Seema Shah, chief global strategist at Principal Asset Management.
“A key question for Powell will be, did the FOMC know the inflation print before they submitted their projections? If they did, that maybe implies that they need more than three months of softer inflation prints before they can be convinced to cut rates,” Shah said in a note.
Stocks maintain gains after Fed highlights ‘modest’ progress on inflation
The Federal Reserve kept a steady hand on interest rates, but it is calling for just one rate cut in 2024.
$S&P 500 Index (.SPX.US)$ and $Nasdaq Composite Index (.IXIC.US)$ held on to their gains as of 2:19 p.m. ET, with the broad market benchmark up 1% and the tech-heavy index up nearly 1.8%.
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