Federal Reserve Chair Jerome Powell made it clear on Tuesday that inflation is not subsiding as quickly as previously anticipated, keeping the central bank in a prolonged holding pattern. Addressing the annual general meeting of the Foreign Bankers’ Association in Amsterdam, Powell pointed out that the rapid drop in inflation witnessed in 2023 has slowed dramatically this year, forcing a reevaluation of fiscal strategies.
“We anticipated some bumps along the way. However, these inflation readings exceeded everyone’s expectations,” Powell stated. “It’s a signal that we need to be patient and let restrictive policy take its course.”
While inflation is expected to decrease over the coming year, Powell acknowledged that such a decline has not materialized yet. “Essentially, it’s about maintaining the current policy rate longer than initially thought,” he remarked. He reassured that the Federal Reserve is not looking to hike rates any further.
The Fed’s key overnight borrowing rate remains in the targeted range of 5.25%-5.5%, the highest it has been in 23 years since July. “Given the data we have, it’s unlikely that our next move will be a rate hike,” Powell said. “It’s more probable that we will maintain the policy rate where it is.”
As Powell delivered his remarks around 10 a.m. ET, market reactions were mixed, with major averages hovering near breakeven by noon ET. Treasury yields dipped, and futures traders slightly increased the market-implied probability of a rate cut by the Fed in September.
Powell’s comments echoed his sentiments from the May 1 news conference following the Federal Open Market Committee’s latest meeting. The committee unanimously decided to hold rates steady, citing “a lack of further progress” in reducing inflation to the target of 2% despite a sequence of 11 rate hikes.
Adding to the disheartening news, fresh inflation data from the Labor Department’s producer price index—a measure for wholesale costs—showed a higher-than-expected increase of 0.5% in April, driven by a surge in service prices. While this index suggested ongoing price pressures, Powell described the report as “mixed,” noting some components indicated easing.
“Is inflation going to be more persistent going forward? … It’s too soon to tell. We need more than a quarter’s worth of data to make an informed judgment,” he concluded.
As Texans and liberty-minded Americans, it’s critical to keep an eye on federal policies and their impacts on our economy. It’s a reminder of why state-level autonomy remains crucial in navigating economic uncertainties.
