It will undoubtedly take “longer than expected” for officials of the American central bank (Fed) to be certain that inflation is slowing sustainably towards the 2% objective, the president of the institution warned on Tuesday. Jerome Powell.
Recent data (…) indicate that it will probably take longer than expected to achieve this confidence, declared the president of the Fed, during a round table with his Canadian counterpart.
The most recent data show solid growth and continued strength in the labor market, but also a lack of progress since the start of the year in terms of our objective of returning 2% inflation, he detailed.
Inflation, which had slowed significantly in the last months of 2023, has since accelerated again.
It rose in March to 3.5% over one year compared to 3.2% in February, according to the CPI index.
The Fed favors another measure, the PCE index, which it wants to bring back to 2%, and which rose to 2.5% year-on-year in February, compared to 2.4% in January. March data will be released on April 26.
Jerome Powell recalled that the Fed’s monetary policy committee is waiting to have greater confidence in the fact that inflation is moving sustainably towards 2% before it is appropriate to ease (its) policy. that is to say, start lowering rates.
We took this cautious approach, and sought this greater confidence, so as not to overreact to the string of low inflation figures in the second half of last year, he detailed.
The markets which, just a few weeks ago, were counting on a first rate cut from June, are now expecting it more for September, or even November, according to CME Group’s estimate.
Since July, rates have been at their highest level in 20 years, between 5.25 and 5.50%, leading to a high cost of credit for businesses and households.
However, they are currently at the right level to address the risks we face, according to Jerome Powell.
So, if high inflation persists, we can maintain the current level (rates) for as long as necessary, while still having significant room to ease if the labor market weakens unexpectedly, he detailed.
The next Fed meeting will take place on April 30 and May 1.