Federal Reserve Chairman Powell said that although the U.S. economy is performing strongly in other aspects, inflation has not yet returned to the central bank’s target, indicating that the possibility of cutting interest rates in the short term is further reduced.
Speaking at a policy forum focusing on the U.S.-Canada economic relationship, Powell said that while inflation continues to slide lower, the current state of policy should remain unchanged.
“Recent data point to solid labor market growth and continued strength, but there is a lack of further progress so far this year toward returning to the 2% inflation goal,” the Fed chairman said during a panel discussion.
Echoing recent statements from central bankers, Powell said current policy levels are likely to remain unchanged until inflation approaches target.
Since July 2023, the Federal Reserve has maintained its benchmark interest rate at a target range of 5.25%-5.5%, the highest level in 23 years. This is the result of 11 consecutive interest rate hikes starting in March 2022.
“Recent data clearly do not give us greater confidence, but rather suggest that achieving that confidence may take longer than expected,” he said. “That said, we believe policy is adequate to address the risks we face.”
Powell added that until inflation shows more progress, “we can maintain current levels of restrictions as long as necessary.”
This follows higher-than-expected inflation data for the first three months of 2023. The March consumer price index released last week showed inflation at an annual rate of 3.5%, well below a peak of around 9% in mid-2022 but having been trending higher since October 2023.
U.S. Treasury yields rose during Powell’s speech. The benchmark two-year note, which is particularly sensitive to changes in Federal Reserve interest rates, briefly topped 5%, while the yield on the benchmark 10-year note rose half a percentage point. Major stock indexes fell after rising earlier in the session.
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