United States Federal Reserve Chair: New Inflation Data ‘In Line’ With Fed’s Wishes

United States Federal Reserve Chair: New Inflation Data 'In Line' With Fed's Wishes

United States (US) Federal Reserve Chairman Jerome Powell said, Friday (29/3), that the latest US inflation data “is in line with what we are seeing.” Powell’s comments appeared to keep the US central bank’s basic information about rate cuts this year intact.

The personal consumption expenditures (PCE) price index data for February, released on Friday, was “what we expected,” Powell said, and although the numbers showed a smaller slowdown compared with last year, “you won’t see us overreacting.”

Last month’s data “wasn’t as low as some of the good data we got in the second half of last year, but it was certainly more in line with what we wanted to see,” Powell said while attending a Fed meeting in San Francisco. During the meeting, he was interviewed by Kai Ryssdal of the “Marketplace” program for public radio.

Powell’s comments were in line with his remarks after the Fed’s policy meeting last week. At that time, he said that higher-than-expected inflation in January and February did not change the direction that price increases would continue to fall this year until they reached the central bank’s target of 2 percent.

US Commerce Department data on Friday (29/3) showed the PCE price index increased 2.5 percent on an annual basis in February, up from 2.4 percent in the previous month. The figure excludes volatile food and energy prices which rose 0.3 percent on a monthly basis, slightly faster than Powell expected when he said last week that core inflation would be “well below” 0.3 percent in February.

Lou Crandall, chief economist at Wrightson ICAP, said the unrounded core PCE figure was just below that figure, at 0.26 percent.

“(The figure) is still above their annual target of 2%, but not a bad figure,” he said.

Indeed, Powell indicated that the latest PCE report did not weaken the central bank’s underlying outlook. However, he said that with the economy being on a “strong” footing.

“That means we don’t need to rush to make cuts,” he said.

The Fed chairman will have another opportunity next week to sharpen his message on the outlook for monetary policy, with a second public appearance in the San Francisco Bay Area on Wednesday at Stanford University. During the event, Powell will deliver a prepared speech.

Economists at Deutsche Bank wrote that they anticipate Powell’s message regarding the near-term outlook will be delivered more cautiously later in the event.

However, “we do not expect any material deviation from the message coming out of the FOMC (Federal Open Market Committee), namely that the Fed is data dependent and needs further evidence that inflation is on track to reach 2 percent.”

‘We will be careful’

Last week, the central bank kept its benchmark interest rate stable in the range of 5.25 percent – 5.50 percent. The Fed also reiterated – narrowly – its baseline projection that interest rates will fall three-quarters of a percentage point by the end of 2024.

The Fed is expected to keep interest rates on hold, as it has done since July last year, at its policy meeting on April 30-May 1.

Powell in recent weeks has had to adjust expectations that interest rate cuts will begin this year with data showing that rising inflation figures have slowed at the start of the year.

“We need to see more” progress in inflation before lowering interest rates, he said Friday.

“The decision to start lowering interest rates is a very, very important decision. … The economy is strong right now, and the labor market is strong right now. And inflation has fallen. We can and will be careful about this. this decision, because we can.”