Fed's Powell: my confidence in inflation moving back down is lower than it was.
Federal Reserve Chair Jerome Powell expressed optimism about the current state of the U.S. economy, foreseeing continued growth above trend and maintaining confidence in decreasing inflation, which, while shaken by recent data, remains largely stable.
"I expect that inflation will move back down ... on a monthly basis to levels that were more like the lower readings that we were having last year," Powell stated at a banking event in Amsterdam.
Despite acknowledging that his confidence in this outlook has decreased due to faster-than-expected inflation in the first three months of the year, Powell still believes it is unlikely that the Fed will need to raise rates further. He noted, "I don't think that it is likely based on the data we have that the next move that we make will be a rate hike. It is more likely ... we hold the policy rate where it is."
Powell's remarks echoed those made at the Fed's previous meeting press conference. Even as new data showed producer prices increasing more quickly than anticipated in April, expectations regarding the Fed's rate decisions remained largely unchanged. Powell described this outcome as "mixed," as prior data was revised downward.
A more significant data release is expected Wednesday when information on consumer prices in April is published. However, investors currently anticipate an initial rate cut in September. The Fed's benchmark policy rate has been held steady in a 5.25% to 5.5% range since July, and officials have largely refrained from providing specific guidance on whether it might be reduced this year.
The uncertainty regarding the strength of the U.S. economy persists, despite its ongoing streak of stronger-than-expected growth amid the Fed's record monetary tightening.
Powell's outlook includes continued growth and ongoing job creation supported by immigration. He anticipates the economy growing approximately 2% this year, slightly above the Fed's estimates of its underlying potential, with a labor market that remains "very, very strong."
"The labor market is about as tight as it was before the pandemic in 2019. And that's good," Powell remarked, highlighting an unemployment rate below 4% for more than two years.
The potential for a renewed decline in inflation without a significant economic slowdown has also been enhanced by the influx of immigrants who have helped fill a surplus of open jobs and contributed to the U.S. economy as consumers.
"We're still getting very substantial numbers of people coming into the country and going to work," Powell explained. "Immigration is also not a policy that the Fed works on or has opinions on, but I'm just giving you the straight economics of it. People come in ... They are getting work permits and they go to work and they're paying taxes and they're creating economic output and there are millions of them."
