Fed's Powell: Too soon to say if recent higher-than-expected inflation is just a bump

By Greg Robb

Fed chair is cautious about interest-rate policy in his remarks

Federal Reserve Chair Jerome Powell said Wednesday that it is too soon to say if the higher-than-expected inflation seen in the first two months of the year is more than just a bump.

While most Fed officials see a likelihood for interest-rate cuts to start at some point this year, "we do not expect that it will be appropriate to lower our policy rate until we have greater confidence that inflation is moving sustainably down toward 2%," Powell said in prepared remarks at a forum at Stanford University.

Powell's speech did not stray far from the message that there was no rush to cut rates, which he presented at his press conference last week and in a subsequent moderated discussion at the San Francisco Fed.

Given the strength of the economy and progress on inflation over the past year, "we have time to let the incoming data guide our decision on policy," Powell said.

While recent readings of job gains and inflation have come in higher than expected, Powell said it didn't change the overall picture of the economy from the Fed's perspective.

The economy continues to exhibit solid growth, a "strong but rebalancing" labor market and inflation moving down toward 2% "on a sometimes bumpy path," he said.

What exactly in the data will give the Fed the confidence it needs to cut rates?

On Tuesday, Cleveland Fed President Loretta Mester said that would be a "committee discussion."

"Each individual data is going to look at the same data" and listen to contacts in their regions to decide in their own minds whether they have gained confidence that inflation is going back down to 2% "in a sustainable way," Mester said.

"I can't tell you, because for each participant it could be different," she added.

Mester said that some further monthly readings will give Fed officials a better sense of whether progress on inflation is slowing.

The Fed will get consumer-price-index data for March, April and May before the June interest-rate committee votes on policy.

At the moment, financial markets are expecting a 25-basis-point cut on June 12, although the odds are not far above a 50-50 split.

Economists see a real risk that the Fed will push a rate cut from June to later in the year.

Atlanta Fed President Raphael Bostic on Wednesday repeated that he thinks that there may only be one rate cut this year and that it will come in December.

In his speech, Powell stressed that the outlook for the economy "is still quite uncertain" and that there are risks that inflation might move higher and the labor market might weaken.

"We will be making decisions meeting by meeting," Powell said.

The Fed has held its federal-funds policy rate at a range of 5.25%-5.5% since July.

Fed officials continue to pencil in three rate cuts this year, but many officials favor two or fewer moves.

The 10-year Treasury yield BX:TMUBMUSD10Y finished Tuesday's session at its highest level since last November.

-Greg Robb

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04-03-24 1213ET

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