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Fed Chairman Powell says inflation was higher than previously thought
Chairman of the Federal Reserve Jerome Powell reiterated Tuesday that inflation it is falling more slowly than expected and will keep the central bank inactive for an extended period.
Speaking at the annual general meeting of Foreign Bankers Association In Amsterdam, the central bank leader noted that the rapid disinflation that occurred in 2023 has slowed considerably this year and prompted a reassessment of the direction policy is taking.
“We didn’t expect this to be a smooth road. But these [inflation readings] were higher than I think anyone expected,” Powell said. “What that told us is that we’re going to need to be patient and let the restrictive policy do its work.”
While he expects inflation to fall throughout the year, he noted that this has not happened so far.
“I think it’s really a matter of keeping policy at the current pace for longer than previously thought,” he said.
However, Powell also repeated that he does not expect the Fed to raise rates.
O Fed has maintained its main overnight interest rate in a target range of 5.25%-5.5%. Although the rate has been at this level since July, it is the highest level in about 23 years.
“I don’t think it’s likely, based on the data we have, that the next move we make is a rate increase,” he said. “I think it’s more likely that we’ll get to a point where we keep the policy rate where it is.”
Markets faltered as Powell spoke around 10 a.m. ET and the major averages were near breakeven around noon ET. Treasury yields fell and futures traders slightly raised the market-implied probability that the Fed’s first rate cut would come in September.
Powell’s comments reflected sentiments he expressed during his May 1 press conference following the most recent Federal Open Market Committee meeting.
The committee voted unanimously to hold rates in line, while also expressing that it had seen a “lack of further progress” in returning inflation to the Fed’s 2% target despite a series of 11 interest rate hikes. .
Tuesday brought a new round of discouraging inflation data, when the Labor Department producer price indexan indicator of wholesale costs, rose 0.5% above expected in April, due to an increase in service prices.
Although the index on its surface indicated further price pressures, Powell classified the report as “mixed” as some of the components showed an easing movement.
“Will inflation be more persistent going forward?… I don’t think we know that yet. I think we need more than a quarter of data to really make a judgment on that,” he said.