Powell: Fed will keep high inflation rates “for as long as necessary”

Recent inflation data indicates it will likely take longer for the Federal Reserve to achieve the confidence needed to lower interest rates, Fed Chairman Jerome Powell said.

Lowering inflation will be a longer battle than expected, admitted the president of the Federal Reserve, Jerome Powellthis Thursday, thus reducing the chances of an upcoming interest rate cut.

Powell He pointed to the little progress in inflation after the rapid decline at the end of last year. He said that if price pressures persist, the Fed can keep rates stable.”for as long as necessary”.

The US central bank maintains its reference interest rates at 5.25-5.50%, a maximum in more than two decades, to contain the rise in prices.

High rates mean more expensive credit, which discourages consumption and investment, and reduces pressures on prices.

The objective of the Fed It is an inflation of 2% annually. But in the last three months the pace of price increases has been increasing, and with these data the possibility of an interest rate cut, highly anticipated by the markets, is diluted.

Many listed companies are highly dependent on credit for their development, so high rates cool their growth prospects and hit investor sentiment.

“The latest data has clearly not given us greater confidence, and instead showed that it is likely to take longer than expected to achieve that confidence“Powell said at an event in Washington on Tuesday.

“Given the strength of the labor market and the progress on inflation so far, it is appropriate to give tight monetary policy more time to work and let the data and the evolving outlook guide us.“, said.

“That said, we think (monetary) policy is well positioned to manage the risks we face”he added.

In March, the directors of the Fed They were thinking about three rate cuts this year, and the market expected a first reduction in June.

But the March inflation data made the outlook recalibrate: now around 70% of traders think that the Fed could begin cutting rates in mid-September, according to data gathered by CME Group.

“If high inflation persists, we can maintain the current level of (monetary) restriction as long as necessary“Powell indicated on Tuesday. “At the same time, we have significant room to make more flexible” the cups “if the labor market unexpectedly weakens”.

““Right now, given the strength of the labor market and the progress in inflation so far, it is appropriate to let the restrictive policy continue to do its job and let the data and the outlook guide us.”he concluded.

The inflation 12 months in the United States stood at 3.5% in March compared to 3.2% in February, according to official figures.

The comments represent a change in Powell’s message. In the past three months a key measure of inflation has exceeded analysts’ projections. It also shows that officials see little urgency in cutting rates and that any reduction in 2024 could come relatively late in the year.

The resilience of the U.S. economy continues to surprise Fed officials. Employers added 300,000 jobs in March, the most in nearly a year, and retail sales beat expectations. That strength has coincided with a rebound in price pressures in 2024. This raises concerns about a stall in progress toward the Fed’s inflation target.

With information from Bloomberg and AFP