Powell says Fed will hold rates steady as inflation stays higher than expected

Amsterdam — Federal Reserve chair Jerome Powell said on Tuesday he expects US inflation to resume declining through 2024 as it did last year, though his confidence in that has fallen after prices rose more quickly than expected through the first quarter.

“I expect that inflation will move back down ... on a monthly basis to levels that were more like the lower readings that we were having last year,” Powell said at a banking event in Amsterdam. “I would say my confidence in that is not as high as it was.”

Still, Powell said he felt it unlikely that the Fed would raise interest rates again, restating as he did after the Fed’s last meeting that the central bank will be “patient” and allow the current policy rate to have its full impact.

“I don’t think that it is likely based on the data we have that the next move that we make will be a rate hike,” Powell said. “It is more likely ... we hold the policy rate where it is.

“We did not expect this to be a smooth road,” Powell said.

Powell spoke shortly after new data showed producer prices in April rose more quickly than expected, a possible sign of pressure building on the prices charged to consumers.

The US Fed chair said he took the data as “quite mixed”, however, noting that input prices for prior months were revised lower.

The Fed has kept its benchmark policy rate steady in a 5.25% to 5.5% range since July, while investors have pushed back rate cut expectations until the fall.

Part of the uncertainty around the Fed’s rate plans relates to the strength of the US economy, which has continued a run of stronger-than-expected growth despite the Fed’s record monetary tightening.

Powell said his outlook was for continued growth and ongoing strength in a labour market he said has been bolstered by immigration.

He said he expected the economy to grow about 2% this year, slightly above the Fed’s estimates of the economy’s underlying potential, with a labour market that is easing slightly but remains strong.

It has all been given a boost, he said, by the arrival of immigrants who took the edge off of last year’s tight labour markets and have added to the US economy as consumers as well.

“We’re still getting very substantial numbers of people coming into the country and going to work,” Powell said. “Immigration is also not a policy that the Fed works on or has opinions on, but I’m just giving you the straight economics of it. People come in... They are getting work permits and they go to work and they’re paying taxes and they’re creating economic output and there are millions of them.”

Reuters