Fed Chair Discusses Inflation and Interest Rates at Bankers’ Meeting

A day before the release of the April Consumer Price Index (CPI), Federal Reserve Chairman Jerome Powell mentioned inflation.

At an event sponsored by the Foreign Bankers’ Association in Amsterdam on Tuesday, Powell presented a half-understood view of the economy. But he also urged patience over the effectiveness of U.S. monetary policy in lowering inflation and even offered commentary on what the Federal Reserve will do next on interest rates.

The labor market is better balanced.

On the economic front, Powell said the economy has been performing very well recently, driven by a strong labor market, rising income levels, strong consumer spending and robust business investment. He added that consumers generally don’t take on too much debt, or in the average person’s view, they have too much debt. Powell also noted that the “massive influx of immigrants into the United States over the past several years” has contributed, and that many of these immigrants are joining the labor market.

“We still have labor shortages in many industries. So there are jobs, and they (immigrants) are working and consuming, which also promotes growth. So overall, it’s a good picture,” he said.

Overall, the Fed chair said the labor market is very strong but is returning to a state where supply and demand for workers are better balanced.

“I would say the labor market is as tight as it was before the pandemic in 2019, and that’s a good thing,” Powell added.

First quarter inflation: “higher than expected”

Regarding inflation, Prime Minister Powell noted that significant progress has been made in lowering inflation, especially in the second half of 2023. However, the momentum slowed in the first quarter of 2024.

“The first quarter in the US was truly notable for the lack of further progress on inflation. We had higher-than-expected numbers in the first quarter,” Powell said. “We didn’t expect this to be a smooth road, but these (inflation numbers) were higher than anyone expected. So this tells us we need to be patient and let the restrictive policies work.”

Powell said he expected economic growth to be at least 2%, the labor market to remain strong but balanced and inflation to fall to levels similar to monthly lows. We did that last year.” However, he added that his confidence is not as high as it used to be after seeing interest rates rise in the first quarter.

“We will have to see where the inflation data falls,” Powell concluded.

As for the next potential move on interest rates, Powell offered some additional color.

“Based on the data we have, I don’t think we are likely to raise interest rates to the next level,” he said, according to Reuters. “It is more likely than not…we are maintaining the current policy rate.”