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.
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“Recent data (…) indicates 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 to 2% inflation,” he said. he detailed.
Inflation, which had slowed significantly in the final months of 2023, has since accelerated again.
It rose to 3.5% over one year in March compared to 3.2% in February, according to the CPI index.
The Fed favors another measure, the PCE index, which it wants to reduce to 2%, and which rose in February to 2.5% year-on-year in February, compared to 2.4% in January. Data for March will be released on April 26.
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Jerome Powell recalled that the Fed’s monetary policy committee is waiting to have “greater confidence that inflation is moving sustainably towards 2% before it is appropriate to ease (its) policy”, that is, start lowering rates.
“We took this cautious approach, and sought this greater confidence, so as not to overreact to the series of weak 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.
Thus, “if high inflation persists, we can maintain the current level (of rates) for as long as necessary”, while having “significant room for maneuver to ease it if the labor market weakens by unexpected way,” he explained.
The next Fed meeting will take place on April 30 and May 1.
