Federal Reserve Chairman Jerome Powell on Tuesday reiterated that inflation is falling more slowly than expected and that the central bank will remain contained for an extended period.
Speaking at the annual general meeting Foreign Bankers Association In Amsterdam, the central banker noted that the rapid deflation experienced in 2023 had slowed significantly this year and prompted a rethink of policy direction.
“We didn’t expect this journey to be smooth. But these [inflation readings] were higher than I think anyone expected,” Powell said. “What this tells us is that we need to be patient and let restrictive policies do their job.”
While he expects inflation to ease over the course of the year, he noted that this has not happened yet.
“I do think it’s really about keeping the policy at the current level longer than intended,” he said.
However, Powell also reiterated that he does not expect the Fed to raise rates.
The Fed is keeping its key overnight borrowing rate in the target range of 5.25%-5.5%. Although the rate has been consistent since July, it is the highest level in about 23 years.
“I don’t think the next step, based on the data we have, is to raise rates,” he said. “I think it’s more likely that we’ll end up in a place where we keep the policy rate where it is.”
Markets faltered as Powell spoke around 10 a.m. ET, and the major indexes were near breakeven heading into midday ET. Treasury yields fell and futures traders slightly raised the market’s perceived likelihood of the Fed’s first rate cut in September.
Powell’s comments reflect sentiments he expressed during his May 1 press conference after the Federal Open Market Committee’s most recent meeting.
The committee voted unanimously to maintain the rate cap while saying it sees “no further progress” in returning inflation to the Fed’s 2% target despite a series of 11 interest rate hikes.
New disappointing inflation data emerged Tuesday as the Labor Department’s producer price index, which measures wholesale costs, rose 0.5% higher than expected in April as service prices soared.
While the index appeared to indicate further price pressure, Powell called the report “mixed” as some components showed weakening moves.
“Will inflation be more stable in the future? … I don’t think we know that yet. I think we need more quarterly data to really make a judgment on this,” he said.