Jerome Powell Reaffirms Fed's Lack Of Urgency In Rate Cuts

Federal Reserve Chair Jerome Powell has reiterated that the US central bank is not in a hurry to reduce interest rates, emphasising the need for more evidence indicating that inflation remains under control.

Speaking at an event at the San Francisco Fed, Powell highlighted the robust pace of US economic growth and the strength of the labour market as reasons for caution in considering rate cuts. He emphasised that before any rate cut decision, policymakers need to be confident that inflation is trending towards the 2 per cent target, which is deemed appropriate for a healthy economy.

Investors are now speculating that the first rate cut by the US central bank could occur in June, but Powell's remarks suggest a cautious approach, waiting for more data to support such a move.

Recent inflation data, in line with expectations, shows a cooling trend in the Fed's preferred gauge of underlying inflation. Powell acknowledged this, noting that while the data align with expectations, they are not as favorable as what policymakers observed in the previous year.

Despite the anticipation of rate cuts, Powell stressed that any decision would be influenced by the ongoing strength of the economy and the persistence of price pressures. He mentioned that while the possibility of a recession is not currently high, unexpected weaknesses in the labour market could prompt a policy response from the Fed.

Inflation, although easing from its peak in 2022, has shown signs of picking up in January and February, challenging the progress made in the previous year. Nevertheless, the US economy continues to demonstrate resilience, with strong consumer spending and robust hiring by employers.

Fed officials, while maintaining their median projection for three rate cuts this year, are closely monitoring inflation trends. Powell and his colleagues have indicated a willingness to adjust policy based on incoming data, highlighting the importance of future inflation prints in shaping monetary policy decisions.

Overall, the Fed's stance remains highly data-dependent, with a focus on achieving better inflation outcomes in the coming months before making any significant adjustments to borrowing costs.