Fed’s Powell Still Expects Rate Cuts, Isn’t Swayed by Hot Inflation Data

Federal Reserve Chairman Jerome Powell is looking past hot inflation and economic data to start 2024. He is sticking with his forecast for a moderation in growth that opens the door to interest-rate cuts later this year—just not anytime soon.

“The recent data do not materially change the overall picture, which continues to be one of solid growth, a strong but rebalancing labor market, and inflation moving down toward 2% on a sometimes bumpy path,” Powell said in prepared remarks for an event at the Stanford Business, Government, and Society Forum at the Stanford Graduate School of Business on Wednesday.

The Fed’s preferred measure of inflation, the core personal consumption expenditures price index, was up 2.8% from a year earlier in February, and 2.9% higher year over year in January. It has averaged a 3.1% annual increase over the past six months, after peaking at 5.6% in 2022.

Meanwhile, job growth remained strong in the first quarter, reflecting a resilient U.S. economy. The Atlanta Fed’s GDPNow model estimates a 2.8% annualized growth rate for real gross domestic product in the first quarter.

It will take further inflation data to show whether the January and February readings were just a bump, or a change in that longer-term trend, Powell said. In the meantime, the solid economy means the Fed can comfortably remain on hold while it waits for clearer data. The March consumer price index will be published on April 10.

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“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. “Given the strength of the economy and progress on inflation so far, we have time to let the incoming data guide our decisions on policy.”

The Fed is still nearing a pivot toward easing monetary policy this year, Powell said, but the timing remains uncertain and depends on what the data say. He expects slowing inflation and moderating economic growth to open the door to rate cuts.

The Federal Open Market Committee has held its target range for the federal-funds rate at 5.25% to 5.5% since July 2023, a level that Powell called “tight.” Prices for interest-rate futures and Fed officials’ latest collective forecast both imply three quarter-point rate cuts this year.

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Policymakers are trying to thread the needle with their next move.

“Reducing rates too soon or too much could result in a reversal of the progress we have seen on inflation and ultimately require even tighter policy to get inflation back to 2%,” Powell said. “But easing policy too late or too little could unduly weaken economic activity and employment.”

Later in his prepared remarks, Powell addressed the Fed’s independence from other branches of government—a hot topic in an election year. The central bank has a Congressionally granted dual mandate to ensure price stability and maximum…

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