US Fed chair Powell signals rates could be higher for longer
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The news: US Federal Reserve chair Jerome Powell has backed away from providing any guidance on when interest rates may be cut, saying instead that monetary policy needs to be restrictive for longer.
The numbers: Fed policymakers have previously said rate cuts are contingent on gaining "greater confidence" that inflation is moving towards the US central bank's 2% goal.
Analysts had earlier pencilled in the first rate cut in June, with two more cuts by the end of 2024. But with recent data showing US economic resilience, the first cut is now expected in September and the odds of a second cut are dwindling.
The context: Recent data have shown that despite restrictive rates, the US economy added a massive 303,000 jobs in March, the pace of consumer price increases accelerated, and even low-income households continued to spend. Powell’s comments further dashed investors' hopes for meaningful reductions in borrowing costs this year and have spooked markets.
In separate remarks, Fed vice chair Philip Jefferson noted the central bank was facing a strong economy and had seen little recent progress in bringing down inflation. He said the Fed was ready to keep its tight monetary policy in place "for longer" if inflation fails to slow as expected.
What they said: "The recent data have clearly not given us greater confidence and instead indicate that it's likely to take longer than expected to achieve that confidence," Powell told a forum in Washington.
"If higher inflation does persist, we can maintain the current level of restriction for as long as needed," he added.
The sources: Reuters, US Federal Reserve, CNBC broadcast
