New inflation interpretation ‘consistent with what we want to see’: Fed Powell

Federal Reserve Chairman Jerome Powell said Friday’s new inflation report was “consistent with what we wanted to see” and insisted that inflation remains on a “bumpy road” to the central bank’s 2% target.

“It’s not as low as most of the good readings we got in the second half of last year, but it’s certainly more in line with what we wanted to see,” Powell said during a question-and-answer session at a San Francisco hotel before the Fed meeting.

Powell was referring to new data released earlier on Friday showing a slight cooling in the personal consumption expenditures index, the Fed’s preferred inflation gauge.

Federal Reserve Chairman Jerome Powell speaks at a Federal Reserve press conference in Washington, Wednesday, March 20, 2024.  (AP Photo/Susan Walsh)

Federal Reserve Chairman Powell spoke at a press conference on March 20. (AP Photo/Susan Walsh) (Associated Press)

Year-over-year changes in the so-called “core” personal consumption expenditures index, which excludes volatile food and energy prices Growth rate in February was 2.8%That was in line with economists’ expectations and down from 2.9% in January.

Core prices rose 0.3% in January-February, also in line with expectations and down from 0.5% in the previous month.

The new data did show a less severe cooling than last year, with Powell repeating that the central bank needs to see more good inflation data like the one seen in the second half of 2023.

He said the Fed did not overreact to good inflation data last year and would not overreact to two months of higher inflation data this year.

“Then the question is, are these just bumps or are they more than just bumps? Will inflation progress slow for more than two months?”

The Fed Chairman maintained that the Fed’s basic assumption remains that inflation will fall.

“We expect inflation to fall to 2% over a bumpy road,” Powell said. “But if that doesn’t happen, then obviously our interest rate policy will be different.”

Powell said the Fed does not want to cut interest rates too early to avoid the risk of a rebound in inflation, and the central bank does not want to wait too long to avoid unnecessary damage to the economy.

Still, Powell noted that the job market and economy are currently strong, “which means we don’t need to rush to cut interest rates,” he said.

“That means we can wait and be more confident that inflation is, in fact, falling sustainably to 2%.”

The market is closed for Good Friday, and the probability that the Federal Reserve will start cutting interest rates in June exceeded 60% on Thursday.

The Fed decided on Wednesday Keep interest rates steady and maintain expectations for three rate cuts this year. Officials also raised their forecasts for inflation and economic growth.

Powell’s comments today reinforced those he made after the last Fed policy meeting, when he said overall inflation had not changed much despite the hotter data.

Some other Fed officials have been warning investors to be patient about the pace of rate cuts.

For example, Fed Governor Chris Waller said Wednesday He is in no rush to cut rates and needs to see at least a few months of better data before he can feel confident enough that loose monetary policy will keep inflation near the Fed’s 2% target.

“There is no rush to lower policy rates,” Waller said in a speech in New York.

Meanwhile, Atlanta Fed President Raphael Bostic also said last week that he currently expects only one interest rate cut this year and believes the rate cut will come later than previously expected.

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