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‘We need to be patient’ on fees
Fed Chairman Jerome Powell said Tuesday that his confidence that inflation will continue to cool is not as high as it was at the start of the year, and that the central bank you will need to be patient before lowering interest rates.
“We didn’t expect this to be a smooth road, but these [inflation readings] were higher than I think anyone expected,” Powell said during a panel in Amsterdam. “What that told us is that we’re going to need to be patient and let the restrictive policy do its work.”
Powell said he expects inflation to fall again on a monthly basis, to levels more similar to the lower readings at the end of last year.
“[But]I would say my confidence in that is not as high as it is after seeing these readings in the first three months of the year.”
Powell’s comments came just hours after a new reading on wholesale prices for April came in hotter than expected.
Wholesale prices rose 0.5% month-on-month in April, above the consensus expectation of 0.3%, according to the latest release of the Producer Price Index, which measures the prices producers receive for goods produced .
The “core” PPI, which excludes the volatile food and energy categories, also rose 0.5% in April, above estimates for a 0.2% increase.
Notably, however, March’s monthly price increase was revised downwards to a 0.1% decrease from an initial reading of a 0.2% increase.
“I would say [the PPI reading was] actually quite confusing,” Powell said Tuesday. “You know, the headline numbers were higher, but they were earlier revisions… I wouldn’t call it hot.”
In terms of when the Fed will cut interest rates, Powell noted that the Fed’s current restrictive stance may take “longer than expected to do its job and reduce inflation.”
“I think it’s really a question of keeping policy at the current pace for longer than previously thought,” Powell said.
Powell’s rhetoric aligned with recent comments from other Fed officials. On Monday, Fed Vice Chairman Philip Jefferson said the Fed would need “additional evidence” that inflation is falling toward the Fed’s 2% target before cutting interest rates.
“Until we have that, I think it’s appropriate to keep the policy rate in restrictive territory,” Jefferson said during a question-and-answer session at the Cleveland Fed.
US Federal Reserve Chairman Jerome Powell at a press conference on May 1. (Photo by Liu Jie/Xinhua via Getty Images) (Xinhua News Agency via Getty Images)
Powell’s comments came ahead of another inflation reading on Wednesday morning, with the release of the April Consumer Price Index (CPI) expected at 8:30 a.m. ET.
Wall Street expects a 3.4% annual gain for the core CPI, which includes food and energy prices, a drop from the previous year. Headline number of 3.5% in March. Prices are expected to rise 0.4% month-on-month, in line with the increase in March.
The story continues
On a “core” basis, which excludes food and energy prices, inflation is expected to have risen 3.6% year over year, a slowdown from the 3.8% increase seen in March. Monthly increases are expected of basic prices are 0.3%, below the 0.4% of the previous month.
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