Fed Chair Powell on interest rates: 'Did not provide confidence'

Federal Reserve (Fed) Chair Jerome Powell stated that gaining the confidence needed to begin lowering interest rates—that inflation is falling—may take longer than expected.

Noting that while inflation fell significantly last year, the labor market remained strong, Powell said that inflation is still too high, there is no guarantee that further progress will be made in reducing it, and its future path remains uncertain.

Powell emphasized that they are committed to bringing inflation down to the 2 percent target.

Pointing out that the Federal Open Market Committee (FOMC) decided today to keep interest rates unchanged and continue reducing its assets, albeit at a slower pace, Powell stated that the restrictive stance of monetary policy is putting downward pressure on economic activity and inflation, and that the risks to the bank's employment and inflation goals are balanced.

"However, in recent months, it has been seen that inflation has not made progress toward our 2 percent target, and we remain highly attentive to inflation risks," Powell said.

"DATA DID NOT PROVIDE MUCH CONFIDENCE"

Stating that the economic outlook is uncertain, Powell reiterated that they do not expect it will be appropriate to lower the interest rate until they have gained greater confidence that inflation is moving sustainably toward 2 percent.

Pointing out that the data so far this year has not provided much confidence, Powell said, "As I have mentioned before, the data on inflation came in above expectations. It is likely that gaining such greater confidence will take longer than expected."

Emphasizing that they are prepared to maintain the current target range for the policy rate for as long as necessary, Powell also expressed that they are prepared to respond to unexpected weakness in the labor market.

Stating that monetary policy is well-positioned to deal with risks and uncertainties regarding the bank's goals, Powell reiterated that they will continue to make their decisions meeting by meeting.

"ELECTIONS WILL NOT AFFECT INTEREST RATE DECISIONS"

Stating that the policy focus is on how long monetary policy will be kept restrictive, Powell said, "I do not think it is likely that the next policy move will be a rate hike."

Powell said that to raise interest rates, they would need to see convincing evidence that monetary policy is not sufficient to bring inflation down to the target, and that it might be appropriate to delay rate cuts if inflation proves more persistent and the labor market remains strong.

Explaining that he does not know how long it will take to gain confidence that inflation is falling, Powell stated that once this confidence is achieved, rate cuts will be on the table.

Powell noted that they should take a signal from the inflation data that exceeded expectations in the first quarter, and that this signal is that reaching the sustainable inflation target will take longer.

Emphasizing that the Fed continues to make its decisions independently regardless of the upcoming US presidential elections this year, Powell stated that otherwise, negative consequences could arise.

News Source: AA