Federal Reserve Chair Jerome Powell stated that a new inflation report released on Friday is “along the lines of what we want to see,” reiterating that inflation is still on a “bumpy path” towards the central bank’s 2% goal.
“It’s not as low as most of the favorable readings we received in the second half of last year, but it’s definitely more in line with what we want to see,” Powell said during a Q&A session at a San Francisco Federal Reserve conference.
Powell was referring to new data released earlier on Friday showing a slight cooling in the Personal Consumption Expenditures index, which is the Fed’s preferred inflation measure.
The year-over-year change in the “core” Personal Consumption Expenditures index, which excludes volatile food and energy prices, was 2.8% for February. This was in line with economist expectations and down from 2.9% in January.
Core prices increased by 0.3% from January to February, also in line with expectations and down from 0.5% the previous month.
The new data showed less cooling compared to last year, and Powell emphasized the need for more positive inflation readings like those in the second half of 2023.
Powell stated that the Fed did not react excessively to good inflation data last year and will not overreact to two months of higher inflation data this year.
“The question then is, are those just bumps or something more significant? Will progress on inflation slow for more than two months?”
Powell reiterated that the Fed’s base case is still the expectation for inflation to decrease.
“We anticipate inflation to decrease on a sometimes bumpy path to 2%,” Powell said. “But if that doesn’t occur, then obviously our rate policy will be different.”
Powell mentioned that the Fed does not want to cut rates prematurely and risk inflation resurging, but also does not want to wait too long and harm the economy unnecessarily.
Still, Powell highlighted that the current job market and economy are robust, indicating that there is no rush to cut rates.
Markets, closed for Good Friday, indicated a greater than 60% chance on Thursday that the Fed will start cutting rates in June.
The Fed recently decided to maintain interest rates and projections for three rate cuts this year, along with an increased outlook for inflation and economic growth.
Powell’s comments today echoed those made after the last Fed policy meeting, where he mentioned that the overall inflation outlook has not changed significantly despite higher inflation data.
Some other Fed officials have advised investors to be patient regarding the pace of rate cuts.
Fed Governor Chris Waller, for instance, stated that he is not in a rush to cut rates and needs to see improved data for a few months before feeling confident in easing monetary policy to maintain inflation on track to the Fed’s 2% target.
Meanwhile, Atlanta Fed President Raphael Bostic anticipates only one rate cut this year, later than previously anticipated.
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