Federal Reserve Chair Jerome Powell warned on Tuesday that persistently high inflation will likely postpone any Fed rate cuts until later this year because recent data hasn’t given the central bank enough confidence that price increases are under control. Powell said that if inflation remains elevated, the Fed can maintain the current level of restriction for as long as necessary.
Powell’s comments followed a speech by Fed Vice Chair Philip Jefferson earlier on Tuesday, who also suggested that the Fed might not implement the three quarter-point reductions in its benchmark rate that officials had predicted during their March meeting. Jefferson said he expects inflation to continue slowing this year but removed a reference to future rate cuts that he had included in a previous speech in February. Instead, he stated that his outlook is for inflation to cool even with the Fed’s key rate “held steady at its current level.”
If inflation proves more persistent than expected, Jefferson added that it will be appropriate to keep rates at their current level “for longer” to help slow inflation to the Fed’s 2% target. U.S. consumer inflation, measured year over year, was most recently reported at 3.5%.
Recent reports showing that the GDP growth remains steady and inflation remains undesirably quick have led Fed officials to emphasize that they see little urgency to reduce their benchmark rate anytime soon. Wall Street traders had previously expected the central bank to cut its key rate at its June meeting but now don’t anticipate the first reduction before September.
The government reported on Monday that retail sales jumped last month, indicating that robust job growth, higher stock prices, and increased home values are fueling solid household spending, which can keep inflation elevated.
Jefferson said the Fed estimates that its preferred inflation gauge, which will be reported next week, rose in March to 2.7% from a year earlier, up from 2.5% in February. He emphasized that while considerable progress has been made in lowering inflation, the job of sustainably restoring 2% inflation is not yet complete.
The Associated Press contributed to this article.