Powell's latest speech: There is still room for interest rate cuts this year

Author: Qin Jin

On April 3, according to " The Wall Street Journal reported that Powell still believes the Fed has room to cut interest rates this year.

Federal Reserve Chairman Jerome Powell said in a speech at Stanford University on Wednesday that stronger-than-expected economic activity this year did not change the Fed's broad expectation that falling inflation will allow the central bank to cut interest rates this year.

Powell said that recent data did not materially change the overall picture, which remains one of solid growth, a strong but rebalancing job market, and inflation heading toward 2% on an sometimes bumpy road. fall back.

According to the New York Times report, this year is an important year for the Federal Reserve. After months of rapid inflation, price increases are finally beginning to ease. That means central bankers may soon be able to cut interest rates from their highest levels in 20 years. The Federal Reserve will raise interest rates to 5.3% from March 2022 to mid-2023 to stabilize the economy and curb inflation.

The New York Times stated that there are two reasons for the rapid cooling of inflation in 2023. One is because of the recovery of the global supply chain. The second is because the prices of some services (such as rent) no longer rise sharply. The fall in service prices is partly linked to wage growth, which has slowed as more workers join the labor force, thanks to strong immigration. Powell said there could be more supply-side gains, noting that the Fed's policies could also weigh on demand for big-ticket items like automobiles and the labor market.

However, determining when and how much to cut interest rates is a very tricky issue. Inflation has slowed more slowly in recent months, and the Fed doesn't want to cut interest rates too soon without fully reining in rising prices. Investors had initially expected the Fed to cut interest rates early this year, but now believe the first cut will come in June or July as officials wait for more evidence that inflation has truly slowed.

Powell said it was too early to judge the state of inflation based on recent data. "We do not expect it to be appropriate to lower the policy rate until we are more confident that inflation is moving sustainably toward 2%," Powell said. He added that given the strength of the economy and progress in inflation so far, we have time to let incoming data guide our policy decisions. He called lowering inflation a "bumpy road."

According to "Reuters", Atlanta Fed President Raphael Bostic said in a separate interview with CNBC on Wednesday that interest rates may not be cut before the fourth quarter of this year. Bostic predicts that 2024 will only be suitable for a 25-percentage-point rate cut, well below the three or more cuts expected by most of his colleagues.

We've seen inflation become more volatile, Bostic said. If the economy develops as I expect, with GDP and employment continuing to be strong and inflation slowly declining this year, I think it would be appropriate for us to begin cutting interest rates at the end of the year, in the fourth quarter.

However, few other Fed officials have been as specific about the outlook for interest rates in public speeches as Bostic.

Federal Reserve Governor Adriana Kugler agreed with Bostic, Powell and other officials' assessment that recent progress in lowering inflation has been "slow." Still, I expect the deflationary trend to continue and help pave the way for a rate cut during the year, Kugler said in comments at Washington University in St. Louis. She said if deflation and labor market conditions develop as I currently expect, some lower policy rates would be appropriate this year.

The Federal Reserve last month stabilized its benchmark overnight interest rate at a range of 5.25%-5.50%, where it has remained since July.