US Federal Reserve Chairman Jerome Powell on Friday reiterated a message he has sounded in the past few weeks: While the Fed expects to cut interest rates this year, it would not be ready to do so until it sees “more good inflation readings” and is more confident that annual price increases are falling toward its 2 percent target.
Speaking at a conference at the Federal Reserve Bank of San Francisco, Powell said he still expected “inflation to come down on a sometimes bumpy path to 2 percent.”
However, the central bank’s policymakers need to see further evidence before they would cut rates for the first time since inflation shot to a four-decade peak two years ago, he said.
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The Fed’s interest rate hikes since March 2022 helped bring inflation down — from a peak of 9.1 percent in June 2022 to 3.2 percent in February, but year-on-year price increases still remain above the Fed’s 2 percent target.
Forecasters had expected higher rates to send the US tumbling into recession. Instead, the economy just kept growing — expanding at an annual rate of 2 percent or more for six straight quarters. The job market, too, has remained strong. The unemployment rate has come in below 4 percent for more than two years, the longest such streak since the 1960s.
Against this backdrop, the US central bank has signaled that it expects to reverse policy and cut rates three times this year.
However, the economy’s strength means the Fed is not under pressure to cut rates and can wait to see how the inflation numbers come in, Powell said.
Asked by the moderator of Friday’s discussion, Kai Ryssdal of National Public Radio’s Marketplace program, if he would ever be ready to declare victory over inflation, Powell demurred.
“We’ll jinx it,” he said. ”I’m a superstitious person.”
Across the Atlantic, a total of four interest rate cuts is feasible this year, for a reduction of 100 basis points by year-end, European Central Bank (ECB) Governing Council member Bank of Greece Governor Yannis Stournaras said.
“If inflation develops in line with our March forecast and if this trend continues until the end of the year, I believe that this year we will have reductions in key interest rates from the ECB,” Stournaras said in an interview with the Proto Thema Sunday newspaper.
“Personally I think the reduction of interest rates by four times this year, by 25 basis points each time, is possible,” he said.
The views of Stournaras, who falls on the dovish side of the ECB’s policy spectrum, have not been fully echoed so far by other ECB Governing Council members.
“This is not yet a unified view,” Stournaras said. “Some colleagues are more cautious and believe that interest rate cuts should be more moderate.”
Recent inflation data from France and Italy has supported the argument that the central bank should start cutting rates sooner rather than later.
As the consumer price index dips closer to the ECB’s 2 percent target, most policymakers have backed ECB President Christine Lagarde’s signal that the first interest-rate cut would come in June.
“The differences of opinion within the Governing Council of the ECB are much smaller than the image in the media,” Stournaras told Proto Thema.
Additional reporting by Bloomberg
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