AP
Federal Reserve Chair Jerome Powell warned Tuesday that persistently high inflation will likely delay any Fed interest rate cuts until later this year, opening the door to a longer period of high rates.
"Recent data clearly have not given us greater confidence" that inflation is completely under control and "instead indicate that it will likely take longer than expected to achieve that confidence," Powell said during a panel discussion. discussion at the Wilson Center.
"If higher inflation persists," he said, "we can maintain the current level (of interest rates) for as long as necessary."
The Fed chair's comments suggested that without more evidence that inflation is falling, the central bank could carry out fewer of the three-quarter-point reductions than its officials had forecast during their most recent meeting in March.
Federal Reserve Chairman Jerome Powell participates in a Washington Forum on the Canadian Economy, along with Bank of Canada Governor Tiff Macklem, Wednesday, April 16, 2025, in Washington. Credit: Manuel Balce Ceneta/AP
His comments Tuesday represented a shift for Powell, who on March 7 had told a Senate committee that the Federal Reserve was “not far away” from gaining the confidence it needed to cut rates. At a press conference on March 20, Powell appeared to downplay that claim. But his comments on Tuesday went further by tempering the likelihood of any rate cuts in the coming months.
"Powell's comments make clear that the Fed is now looking beyond June," when many economists had previously expected rate cuts to begin, EvercoreISI analyst Krishna Guha said in a research note.
In recent weeks, government data has shown that inflation remains stubbornly above the Federal Reserve's 2% target and that the economy continues to grow strongly. Year-on-year inflation rose to 3.5% in March, from 3.2% in February. And a gauge of "core" prices, which excludes volatile food and energy, rose sharply for the third straight month.
As recently as December, Wall Street traders had priced in as many as six quarter-point rate cuts this year. Now they only foresee two rate cuts, the first of which will occur in September.
Powell's comments followed a speech earlier Tuesday by Federal Reserve Vice Chairman Philip Jefferson, who also appeared to raise the possibility that the Fed would not carry out three cuts this year in its benchmark rate. The Federal Reserve rate is at a 23-year high of 5.3% after 11 rate increases that began two years ago.
