Wells Fargo CIO for Wealth & Investment Management Darrell Cronk says the April labor data was exactly what the Fed wanted to see on ‘Making Money.’
Federal Reserve Chair Jerome Powell reiterated Tuesday that the central bank will be patient and wait for evidence that inflation is slowing before it cuts interest rates.
Speaking during a panel discussion in Amsterdam, Powell said that recent inflation figures – which have come in higher than expected since the start of the year – suggest it will take longer than previously thought to attain the confidence needed to start loosening monetary policy.
“We did not expect this to be a smooth road, but these were higher than I think anybody expected,” he said. “What that has told us is that we will need to be patient and let restrictive policy do its work.”
THE SILVER LINING OF HIGHER INTEREST RATES: SAVINGS ACCOUNT RATES
Federal Reserve Chair Jerome Powell holds a press conference at the end of the two-day Federal Open Market Committee meeting at the Federal Reserve in Washington, D.C. on March 20, 2024. (Photo by Mandel Ngan/ AFP via Getty Images / Getty Images)
While the Fed chief said that he expects inflation will eventually continue to cool further, he warned that “my confidence in that is not as high as it was, having seen these readings in the first three months of the year.”
Still, Powell said it remained unlikely that the Fed would need to hike rates any further, even as the outlook for rate cuts dims.
“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,” he said. “It is more likely… we hold the policy rate where it is.”
HOME PRICES SURGE TO ANOTHER RECORD HIGH IN FEBRUARY
Powell’s comments came shortly after the Labor Department reported that the producer price index, which measures inflation at the wholesale level before it reaches consumers, rose 0.5% in April from the previous month. On an annual basis, prices remain up 2.2% – the highest level since April 2023.
While inflation has fallen considerably from its peak, progress has largely flatlined since the summer. The Fed’s favorite gauge shows that inflation is running at a 2.7% pace – well above the central bank’s 2% goal. When excluding food and energy, underlying core inflation came in even hotter at 2.8%.
A woman shops for groceries at a supermarket in Monterey Park, California, on Oct. 19, 2022. ((Photo by FREDERIC J. BROWN/AFP via Getty Images) / Getty Images)
Policymakers raised interest rates sharply in 2022 and 2023 to the highest level since the 1980s in a bid to slow the economy and cool inflation. Officials are now grappling with when they should take their foot off the brake.
Most investors now expect the Fed to begin cutting rates in September or November and are penciling in just two reductions this year — a dramatic shift from the start of the year, when they anticipated six rate cuts beginning as soon as March.
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Higher interest rates tend to create higher rates on consumer and business loans, which then slows the economy by forcing employers to cut back on spending. Higher rates have helped push the average rate on 30-year mortgages above 8% for the first time in decades. Borrowing costs for everything from home equity lines of credit, auto loans and credit cards have also spiked.
