Powell expresses lower confidence in inflation slowing

Federal Reserve Chair Jerome Powell recently reiterated the central bank's stance on interest rates during a panel discussion in Amsterdam. Powell stated that the Fed will remain patient and wait for evidence that inflation is slowing before considering any cuts to interest rates. He noted that recent inflation figures have come in higher than expected, indicating that it may take longer than previously thought to begin loosening monetary policy.

While Powell expects inflation to eventually cool further, he expressed uncertainty due to the higher-than-anticipated readings in the first three months of the year. Despite this, he stated that it is unlikely the Fed will need to hike rates any further, with the next move more likely to be holding the policy rate steady.

The discussion on interest rates comes on the heels of the Labor Department's report that the producer price index rose 0.5% in April from the previous month, with prices up 2.2% on an annual basis. Inflation has fallen from its peak but progress has stalled since the summer. The Fed's preferred gauge shows inflation running at a 2.7% pace, above the central bank's 2% goal.

Policymakers raised interest rates in 2022 and 2023 to slow the economy and cool inflation, leading to speculation on when they should reverse course. Most investors now anticipate rate cuts in September or November, a significant shift from earlier expectations of multiple cuts starting in March.

The impact of higher interest rates has led to increased rates on consumer and business loans, which can slow the economy by reducing spending. For example, the average rate on 30-year mortgages has surpassed 8%, a level not seen in decades. Borrowing costs for various loans, including home equity lines of credit and auto loans, have also risen.


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