WASHINGTON (AP) — Federal Reserve Chairman Jerome Powell said Tuesday that the central bank it is unlikely to increase its key interest rate in response to signs of persistent inflation and highlighted his view that price increases would soon begin to subside again.
Still, Powell, at a roundtable in Amsterdam, said his confidence in slowing inflation “is not as high as it was” because price increases have been persistent over of the first three months of this year. Powell stressed that the Fed’s preferred approach was to keep its policy rate at its current two-decade high rather than raise it.
“I don’t think it’s likely, based on the data we have, that the next action we take is to raise rates,” Powell said. “I think it’s more likely that we’re at a point where we keep the policy rate where it is.
Financial markets and economists had been hoping for signs that one or two Fed rate cuts could come this year, given that inflation is down sharply from its 2022 peak. But with pressure on With prices still high, Powell and other Fed officials signaled that there was no inflation. a rate cut is likely in the near future.
Powell spoke hours after a report on U.S. producer prices showed that wholesale inflation accelerated in April. On Wednesday, the government will release the latest monthly consumer inflation report, which is expected to show that price growth slowed slightly last month.
In his remarks Tuesday, Powell downplayed the wholesale price report, which also showed some costs fell last month, including those for plane tickets, hospital visits and auto insurance.
“I wouldn’t say it’s hot,” he said of the headline inflation data. “I would say it’s pretty mixed.”
Economists are divided on whether this year’s high inflation figures reflect a reacceleration of price growth or whether they are largely a reflection of pandemic-related distortions. Auto insurance, for example, is up 22% from last year, but that increase may reflect factors specific to the auto industry: New car prices have jumped during the pandemic, and insurance companies Insurance companies are now seeking to offset higher repair and replacement costs by increasing their premiums.
Other economists point out that consumers regularly spend on dining out, travel and entertainment, categories in which, in some cases, price increases have also been high, perhaps reflecting strong demand.
Powell said upcoming inflation reports will reveal whether these factors are keeping inflation high or whether inflation will soon fall back toward the Fed’s 2% target, as he hoped. Inflation, which peaked at 9.1% in the summer of 2022, is expected to slow to 3.4% according to the latest report released on Wednesday.
The Fed chairman noted that rising rents are a key factor in keeping inflation high. He called it “a bit of a headache” because measurements of new apartment leases show new rents are barely increasing. These weaker data have apparently not yet been taken into account in government measures, which cover all rents, including for tenants renewing their lease. Even if rents continue to rise faster for tenants renewing their leases, Powell said the government’s measures should ultimately result in a slowdown in rent growth.
The Fed chairman also acknowledged that the economy “is different this time” because many Americans refinanced their mortgages at very low rates before the Fed began raising borrowing costs in March 2022 Many large companies also set low rates around this time.
“It may be,” he said, that the Fed’s rate policy “is affecting the economy.” not as strong as would have been the case if these two things were not the case.
Last week, Fed officials stressed that they were prepared to leave their key interest rate at 5.3%, the highest level in 23 years, for as long as necessary to suppress inflation.
