Powell says new U.S. inflation data ‘in line’ with Fed expectations

Federal Reserve Chairman Jerome Powell said in comments on Friday that the latest U.S. inflation data was “consistent with what we wanted to see,” appearing to keep the central bank’s baseline for cutting interest rates this year unchanged.

Powell said February personal consumption expenditures (PCE) price index data released on Friday were “in line with our expectations” and although the data showed a slower slowdown than last year, “you won’t see that coming out of us”. Overreact. “

Last month’s data “were not as low as most of the good data we had in the second half of last year, but certainly more in line with what we wanted to see,” Powell said during an appearance at the San Francisco Fed, where he told public radio’s Marketplace “Interview with Kai Ryssdal of the show.

Powell’s comments were consistent with those he made after last week’s Fed policy meeting, where he said higher-than-expected inflation in January and February did not change the feeling that price increases this year will continue to fall back toward the central bank’s 2% target. .

Data released by the U.S. Department of Commerce on Friday showed that the PCE price index increased at an annual rate of 2.5% in February, higher than the 2.4% increase last month. The figure, which excludes volatile food and energy prices, rose 0.3% from the previous month, slightly faster than Powell expected last week when he said core inflation in February would be “well below” 0.3%.

Wrightson ICAP chief economist Lou Crandall said the unrounded core PCE figure was indeed slightly lower than that, at 0.26%. “That’s still above their 2% annualized target, but it’s not a terrible number,” he said.

Indeed, Powell said the latest personal consumption expenditures report did not weaken the central bank’s baseline outlook, but said that given the “strong” economic fundamentals, “that means we don’t need to rush to cut interest rates.”

The Fed chair will have another chance to refine his message on the outlook for monetary policy next week, when he makes his second public appearance Wednesday at Stanford University in the San Francisco Bay Area and delivers prepared remarks.

Commenting on the upcoming event, economists at Deutsche Bank wrote: “While we expect information on the near-term outlook to be more cautiously worded, we do not expect information from the Federal Open Market Committee (FOMC) on March 20 to be A major deviation has occurred.” [Federal Open Market Committee] The content of the meeting was that the Fed relied on data and needed further evidence that inflation was rising to 2%. “

“We will be careful”

Economists pointed to some details in February’s personal consumption expenditures data that showed improvement on the inflation front that the Fed considers important, although the overall data for the first two months of the year showed little progress.

The central bank last week held its benchmark overnight rate steady in a range of 5.25%-5.50% and slightly reiterated its baseline forecast that rates will fall by three-quarters of a percentage point by the end of 2024.

The Fed is expected to keep interest rates steady at its April 30-May 1 policy meeting, as it has done since July last year.

Policymakers will then receive March’s inflation and employment reports, as well as preliminary estimates of gross domestic product growth in the first three months of the year.

While Fed officials have been careful to say they don’t put too much weight on any single month’s data, the March data could have a bigger impact if they confirm expectations for jobs and wages — or if they contradict expectations. Growth slowed and housing inflation cooled.

Economists polled by Reuters expect the March jobs report due next Friday to show continued strong wage growth, with 200,000 new jobs added, but annual wage growth at 4.1%, the highest since June 2021. the lowest growth rate.

In recent weeks, Powell has had to temper expectations that interest rates will begin to be cut this year, amid data showing that improvements in inflation data at the start of the year have slowed.

“We need to see more” progress on inflation before cutting rates, he said on Friday.

“The decision to start cutting interest rates is a very, very important decision… The economy is strong right now, the labor market is strong. Inflation has been falling. We can and we will be cautious about this decision because we can.”