Fed Chair signals prolonged battle with inflation, dampens hopes for early rate cuts

Jerome Powell

17th April 2024 – (Washington) Jerome Powell, the Chairman of the U.S. Federal Reserve, indicated that the fight against inflation might extend “longer than expected”. This announcement comes as a setback to hopes of early interest rate cuts, with the central bank’s chief suggesting that high rates could persist well into the future.

Since 2022, the Federal Reserve has aggressively raised its key lending rate to a peak not seen in 23 years, aiming to curb inflation and stabilize prices around its long-term target of two percent. However, persistent inflationary pressures, marked by three consecutive months of elevated inflation data in 2024, have cast doubts on the likelihood of reducing interest rates within the year.

During a streamed event in Washington on Tuesday, Powell conveyed a cautious tone regarding the economic outlook. “The recent data have clearly not given us greater confidence, and instead indicate that it’s likely to take longer than expected to achieve that confidence,” he stated, emphasizing the challenges in swiftly reaching the Fed’s inflation targets.

Initially, Fed policymakers had anticipated up to three rate cuts for this year, which led market participants to expect a reduction as early as June. However, the unexpectedly high consumer inflation figures for March prompted a reassessment among traders, pushing back the timeline for potential rate cuts.

According to data from the CME Group, futures traders now see about a 70% likelihood of the Fed initiating rate cuts by mid-September. Powell’s remarks underscored a readiness to maintain the current restrictive monetary policy if inflation remains stubbornly high. “If higher inflation does persist, we can maintain the current level of restriction for as long as needed,” he affirmed.

Conversely, Powell also noted the Fed’s capability to adjust policies if economic conditions, particularly in the labor market, deteriorate unexpectedly. “At the same time, we have significant space to ease should the labour market unexpectedly weaken,” he explained.