“Of course, the outlook is still quite uncertain, and if incoming data suggest that inflation is more persistent than I currently expect it to be, it will be appropriate to hold in place the current restrictive stance of policy for longer,” he added.
Stocks wobble after Powell warns that rate cuts will likely come later than expected
Washington (CNN) — US stocks wavered Tuesday after Federal Reserve Chair Jerome Powell said a “lack of further progress” on inflation means the central bank likely won’t cut interest rates at its upcoming policy meeting just two weeks away, keeping them higher for longer.
Stocks seesawed after Powell’s comments but were higher by Tuesday mid-afternoon. The Dow rose 73 points, or 0.2%. The S&P 500 fell 0.1% and the Nasdaq Composite lost 0.03%. Meanwhile, the 2-year Treasury yield topped 5% on Tuesday before retreating below that threshold to about 4.96%.
Stocks seesawed after Powell’s comments but were higher by Tuesday mid-afternoon. The Dow rose 73 points, or 0.2%. The S&P 500 fell 0.1% and the Nasdaq Composite lost 0.03%. Meanwhile, the 2-year Treasury yield topped 5% on Tuesday before retreating below that threshold to about 4.96%.
- “The recent data have clearly not given us greater confidence” that inflation is headed toward the central bank’s 2% goal, Powell said during a moderated discussion hosted by the Wilson Center.
“Right now, given the strength of the labor market and progress on inflation so far, it’s appropriate to allow restrictive policy further time to work and let the data and the evolving outlook guide us,” the Fed chief said.
Recent inflation reports have shown persistent price pressures in services and housing.
Higher borrowing costs, coupled with elevated prices for essentials, have forced many Americans to cut back. And while the US economy and the job market remain on strong footing, higher mortgage rates have all but stalled the housing market.
But the latest retail sales report showed that consumers continued to spend last month, and marks the latest shred of evidence that the economy remains solid, leaving the Fed in no rush to cut rates.
The central bank typically reduces rates whenever the economy sharply weakens because it is also mandated by Congress to achieve maximum employment, in addition to stable prices. There is currently no sign of a sharply deteriorating job market.
“Fed Chair Powell moved more decidedly in a hawkish direction as he essentially underscored that the downward trajectory of inflation has essentially stalled,” Quincy Krosby, chief global strategist at LPL Financial, said in a note Monday.
Stalling progress on inflation
Powell’s comments Tuesday don’t come as a surprise and they largely echo what other Fed officials have said in recent speeches, which is that the Fed isn’t considering cutting rates just yet.
But the Fed chief’s remark that there hasn’t been “further progress” on inflation is a pivot from his comment last month that recent inflation reports may have been firmer than expected simply due to “seasonal fluctuations.”
Consumer prices were up 3.5% in March from a year earlier, according to the latest Consumer Price Index, a considerable increase from February’s 3.2% rise and above what economists estimated in a FactSet poll. It was the third straight month that the CPI surprised to the upside.
Rising gas prices have recently pushed up inflation overall, but shelter and insurance costs have came also in hot. Consumer prices in the services sector broadly have proven to be stubborn. The Fed’s favorite inflation measure, the Personal Consumption Expenditures price index, also hasn’t given Fed officials much reassurance that inflation is under control.
Persistently robust economic growth could be preventing inflation from drifting lower. It also remains to be seen whether productivity growth, which can help keep inflation in check, will continue to increase as it did last year. The conventional wisdom is that if workers are producing more with less, then the economy can continue to expand without stoking inflation or keeping upward pressure on prices.
The Atlanta Fed is currently projecting first-quarter gross domestic product to register at a solid 2.9% annualized rate.
Higher borrowing costs, coupled with elevated prices for essentials, have forced many Americans to cut back. And while the US economy and the job market remain on strong footing, higher mortgage rates have all but stalled the housing market.
But the latest retail sales report showed that consumers continued to spend last month, and marks the latest shred of evidence that the economy remains solid, leaving the Fed in no rush to cut rates.
The central bank typically reduces rates whenever the economy sharply weakens because it is also mandated by Congress to achieve maximum employment, in addition to stable prices. There is currently no sign of a sharply deteriorating job market.
“Fed Chair Powell moved more decidedly in a hawkish direction as he essentially underscored that the downward trajectory of inflation has essentially stalled,” Quincy Krosby, chief global strategist at LPL Financial, said in a note Monday.
Stalling progress on inflation
Powell’s comments Tuesday don’t come as a surprise and they largely echo what other Fed officials have said in recent speeches, which is that the Fed isn’t considering cutting rates just yet.
But the Fed chief’s remark that there hasn’t been “further progress” on inflation is a pivot from his comment last month that recent inflation reports may have been firmer than expected simply due to “seasonal fluctuations.”
Consumer prices were up 3.5% in March from a year earlier, according to the latest Consumer Price Index, a considerable increase from February’s 3.2% rise and above what economists estimated in a FactSet poll. It was the third straight month that the CPI surprised to the upside.
Rising gas prices have recently pushed up inflation overall, but shelter and insurance costs have came also in hot. Consumer prices in the services sector broadly have proven to be stubborn. The Fed’s favorite inflation measure, the Personal Consumption Expenditures price index, also hasn’t given Fed officials much reassurance that inflation is under control.
Persistently robust economic growth could be preventing inflation from drifting lower. It also remains to be seen whether productivity growth, which can help keep inflation in check, will continue to increase as it did last year. The conventional wisdom is that if workers are producing more with less, then the economy can continue to expand without stoking inflation or keeping upward pressure on prices.
The Atlanta Fed is currently projecting first-quarter gross domestic product to register at a solid 2.9% annualized rate.
First rate cut in the summer? . .
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"Right now, given the strength of the labor market and progress on
inflation so far, it's appropriate to allow restrictive policy further time
to work and let the data and the evolving outlook guide us," he said.
===================================================
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