- Federal Reserve Chairman Jerome Powell said that the US central bank must be patient while waiting for more evidence that high interest rates are working to curb inflation, which underscores the need to keep borrowing costs high for a longer period.
- According to Bloomberg, Powell expects inflation to decline on a monthly basis, but noted that the price numbers in the first quarter reduced his confidence.
- Powell described current monetary policy as restrictive across many measures, but made clear that time will tell whether policy is restrictive enough to return inflation to the Fed's target of 2%.
- Powell said, during a conference hosted by the Foreign Bankers Association in Amsterdam yesterday, Tuesday: “It is noted in the first quarter that no further progress was made in combating inflation in the United States. We did not expect the road to be smooth, but it came higher than anyone expected.”
- He added: “What we take away from this is that we will need to be patient and let restrictive monetary policy do its job.”
- In a moderated discussion between Powell and ECB Governing Council member Klaas Knott, the Fed Chairman stressed that it is unlikely that the Fed's next step will be to raise interest rates, and added that the Fed is likely to keep interest rates at their same levels.
- US central bankers, including Powell, expressed disappointment at the lack of progress in falling inflation during the first quarter.
- Earlier this month, monetary policymakers left the benchmark interest rate unchanged at its highest level in 23 years, a level Powell said he was prepared to maintain “for as long as is appropriate.”
- A government report on Tuesday showed that the Producer Price Index, a measure of wholesale prices, beat all economists' expectations in April. However, many components of the report that feed into the calculation of the Federal Reserve's preferred measure of inflation, the Personal Consumption Expenditures Price Index, were more mixed.
- Powell described this report as “mixed.” The consumer price index for April is expected to be released on Wednesday, and economists polled by Bloomberg expect prices to rise 3.4% from the previous year.
- The US economy continues to show strength even as the Federal Reserve keeps interest rates high for longer.
- Nonfarm payrolls have averaged 246,000 per month so far this year, and unemployment remains low. However, the April jobs report showed some signs of moderation, with the pace of job growth slowing and an unexpected rise in unemployment.
- Powell described the labor market as “very strong” with signs of gradual calming and rebalancing, partly due to increased labor supply due to increased immigration, and added that the labor market is as tight as it was before the pandemic in 2019.
