Federal Reserve Chairman Jerome Powell on Friday, March 29, at an event in San Francisco, said that the central bank of the United States does not intend to make hasty decisions and act in an accelerated manner as part of an approach to a potential reduction in interest rates.
It is worth noting that recently Fed officials have consistently stated in the public space about a kind of unhurried concept of the financial regulator regarding monetary policy easing. Mr. Powell’s statements made in San Francisco are another reminder that the central bank does not intend to rush into deciding on reducing the cost of borrowing. This does not mean that the Fed is postponing monetary policy easing indefinitely but is a signal that there will be no quick measures in this case.
Jerome Powell in San Francisco separately noted that the financial regulator should not rush into the context of reducing the cost of borrowing. Also at the mentioned event, he stated that the new inflation data is largely in line with the expectations of the central bank of the United States. At the same time, Mr. Powell underlined that it is inappropriate for the financial regulator to begin implementing an easing policy until officials have firm confidence that the growth in the cost of goods and services is on a trajectory toward the Fed’s target of 2%.
Commenting on the inflation data, Jerome Powell also noted that it is always pleasant to observe what is being implemented following expectations. However, he stated that the latest data on the condition of the United States financial system is not as good as what politicians saw last year.
The Fed’s preferred gauge of underlying inflation declined in February after rising even more in January. This is evidenced by data from the United States government, which was published on Friday. The core personal consumption expenditures price index, which excludes the volatile cost of food and energy, showed an increase of 0.3% in February. In January, this indicator grew by 0.5% which was the biggest increase in a year.
Jerome Powell said he expects inflation in the United States to continue to decline along a sometimes bumpy trajectory. In this case, he repeated what was said by him after the last meeting of the financial regulator in March. At the mentioned meeting, officials of the central bank of the United States held short-term interest rates at a more than two-decade high. At the same time, some of them spoke in favor of three lowering the cost of borrowing in 2024. Jerome Powell says it would be appropriate for the Fed to ease monetary policy at some point in the current year.
Recently, inflation in the United States has decreased significantly after a 40-year peak recorded in 2022. In January and February of this year, the corresponding progress slowed down against the background of accelerating consumer price growth.
At the same time, the United States’ economic system continues to show resilience despite high-interest rates. In February, the volume of consumer spending, adjusted for inflation, exceeded all estimates by economists. Employers continue to actively hire workers.
The consolidated position of Fed officials is that this year the financial regulator will cut interest rates three times. At the same time, some representatives of the central bank of the United States admit the possibility that two or even one such decision will be made in the current year. This opinion is not the point of view of the majority, but it also does not belong to the category of unpopular visions of prospects.
Investors expect the Fed to start reducing borrowing costs in June. At the same time, the financial regulator very persistently repeats that to make such decisions, more data is needed about the dynamic of the economy of the United States and its subsequent vector. In this case, first of all, it implies the need to be sure that inflation is approaching the Fed’s target of 2%.
In San Francisco, Jerome Powell also said that an unexpected weakening in the labor market may require a policy response from officials of the central bank of the United States. In this context, he noted that the probability of a recession is not high.
Christopher Waller, a member of the Board of Governors of the Fed, said this week that disappointing inflation data in early 2024 means that policymakers may be forced to keep interest rates high for longer than initially anticipated. It is worth noting that he is one of the proponents of a rapid increase in the cost of borrowing to curb price pressure.
Jerome Powell and many of his colleagues expect that inflation growth will be uneven. Also, despite stating the need for additional data and the rejection of impulsive decisions, they do not intend to wait until the growth in the cost of goods and services reaches the target to begin easing monetary policy.
As inflation eases, the pressure on the United States economy from high-interest rates is increasing. Reducing the cost of borrowing shortly is necessary to avoid damage to the labor market.
In February, inflation in the United States was fixed at 3.15%. This is evidenced by the data from YCharts. In June 2022, inflation in the US reached 9.06%, after which a gradual but uneven decline began.
As we have reported earlier, US Authorities Revise Economy Fourth-Quarter Growth.
