Reuters:
The latest U.S. inflation data is "along the lines of what we would like to see," Federal Reserve Chair Jerome Powell said Friday in comments that appeared to keep the central bank's baseline for interest rate cuts this year intact.
The personal consumption expenditures (PCE) price index data for February, which was released on Friday, "is what we were expecting," Powell said, and even though the numbers showed less of a slowdown than last year, "you won't see us overreacting."
The data last month were "not as low as most of the good readings we got in the second half of last year, but it's definitely more along the lines of what we want to see," Powell said during an appearance at the San Francisco Fed where he was interviewed by Kai Ryssdal of public radio's "Marketplace" program.
Powell's comments were in line with his remarks after the Fed's policy meeting last week, in which he said higher-than-expected inflation in January and February had not changed the sense that price rises would keep falling this year to the central bank's 2% target. < Keep in mind that this does not mean that food prices or anything else will be going down. It just means the pace of consumer prices going up has slowed too more normal.
U.S. Commerce Department data showed the PCE price index increased at a 2.5% annual rate in February, up from 2.4% in the prior month. The number excluding volatile food and energy prices rose 0.3% on a month-to-month basis, slightly faster than Powell anticipated when he said last week that February core inflation would be "well below" 0.3%.
Still, the Fed chief indicated the February report did not undermine the central bank's baseline outlook.
Some details of the PCE data, economists noted, showed improvement in aspects of inflation that the Fed considers important, even as the headline numbers have shown little progress in the first two months of the year.
The central bank last week held its benchmark overnight interest rate steady in the 5.25%-5.50% range and also reaffirmed — narrowly — a baseline projection that the rate will fall by 0.75 percentage points by the end of this year.
The Fed is expected to hold rates steady, as it has since July of last year, at its April 30-May 1 policy meeting.
Policymakers by then will have received inflation and jobs reports for March, and the initial gross domestic product growth estimate for the first three months of the year.
While Fed officials have been careful to say they don't put much weight on any single month's data, the March readings could have an outsized bearing on their policy discussion if they confirm — or perhaps even more if they contradict — an anticipated job and wage growth slowdown and a cooling of housing inflation.
Economists polled by Reuters expect the March jobs report, which will be released next week, to show continued strong payroll growth, with 200,000 jobs added, but with annual wage growth, at 4.1%, hitting its slowest pace since June 2021.
Powell in recent weeks has had to reconcile expectations for rate cuts to begin this year with data showing improvement in the inflation number had slowed to start the year.
"We need to see more" progress on inflation before cutting rates, he said on Friday. "The decision to begin to reduce rates is a very, very important one ... The economy is strong right now, and the labor market is strong right now. And inflation has been coming down. We can and we will be careful about this decision because we can be."
Good News from the Fed should push oil price higher
Good News from the Fed should push oil price higher
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: Good News from the Fed should push oil price higher
MY TAKE: I see fuel prices going higher, so it seems unlikely to me that inflation will move back under 2%. This is especially true for food prices since planting season is here and diesel prices remain high and likely to go higher. Plus, our current administration shows no sign of slowing the spending on crazy wind and solar projects. The "Inflation Reduction Act" will go down in history as a joke.
More from Reuters:
Federal Reserve Chair Jerome Powell says the central bank is not growing more tolerant of higher inflation even though the latest policymaker projections raised the inflation outlook for the year without triggering a tougher monetary-policy response.
But former Fed officials and other analysts see Powell nevertheless approaching a difficult moment trying to reconcile competing economic risks, a divided group of Fed policymakers, and a public now expecting interest rate cuts to start in June.
Upcoming data may well support a June rate reduction if inflation declines convincingly towards the Fed's 2% target between now and then, resuming a trend that encouraged policymakers last year to cap the federal funds rate at the current 5.25%-5.50% and lay the groundwork for easing to begin this year. Others see a slowing economy and weakening job growth on the horizon, pushing the Fed to cut in order to support the labor market.
Yet even if inflation proves more persistent than expected in coming weeks and the economy remains strong, the Fed could still proceed with a June cut by framing it as a potentially one-off adjustment rather than the locked-in beginning of a series of reductions, former Fed Vice Chair Richard Clarida, now a global economic adviser to bond giant PIMCO, wrote this week in assessing the pivotal moment central banks face in their policy communications.
The upfront justification of rate cuts expected to start this summer, Clarida said, would be that policymakers are simply keeping rates in step with the decline in inflation seen since last year, and could cut further as long as inflation continued to fall.
But "if inflation...does not follow the forecasts and becomes entrenched at a plausible 2.5%...the central banks would likely pause their rate cut cycles," Clarida wrote, and depend "on their belief that by keeping policy restrictive long enough, they can credibly forecast inflation returning (eventually) to the 2% target."
An initial cut, explained with language that tilts towards suspending further reductions if inflation does not behave as expected, would hedge the risks facing both sides of the Fed's employment and inflation goals, and assuage the concerns of Fed officials worried most about damaging the current expansion as well as those worried most about embedded inflation.
It would also throw a kink into expectations that 2024 will be the year when the Fed's record-setting inflation battle ends in a steady succession of rate cuts and continued economic growth.
Recent comments from Fed officials have put divergent views on display, with Fed Governor Christopher Waller saying Wednesday he would support keeping policy tighter than expected if inflation data is not encouraging, and Chicago Fed President Austan Goolsbee saying earlier in the week recent high inflation readings don't undercut the trend towards easing price pressures.
At his press conference after last week's policy meeting, he said recent, more elevated price data "haven't really changed the overall story, which is that of inflation moving down gradually on a sometimes-bumpy road toward 2%," comments that left expectations for a June rate cut intact.
Part of that narrative appears driven by policymakers' belief the economy is in a rare moment when the forces that can sometimes disrupt central bankers' best laid plans have been working in the Fed's favor.
Productivity has been growing at a surprising clip, allowing the economy to grow fast without adding to price pressures; a jump in the labor force has also helped the unemployment rate stay low without driving up wages. The Fed's most recent set of economic projections continued that rosy view of the world, with faster economic growth and a slightly lower unemployment rate than anticipated as of December, and inflation still falling to the 2% target over the next two years though at a slightly slower pace.
Skepticism about that view is likely to grow, however, if Friday's data and other incoming inflation figures are higher than anticipated - and not just from steady inflation hawks like Waller but from others as well, like Atlanta Fed President Raphael Bostic, a voter this year on interest rate policy.
In comments to reporters last week, Bostic said he had already scaled back his expectations for 2024 from a half-point reduction in the policy rate to a quarter point cut, "and I'm looking sort of later in the year than I might have not otherwise" to approve it.
Upcoming inflation and economic data could well sway policymakers in either direction.
Recent projections showed a group that was sharply divided. While the baseline remained intact at three quarter-point rate cuts this year, the split was 10 to 9 between those policymakers seeing at least that many, and those seeing less easing ahead.
SHIFTING CONSENSUS
But they were also tightly clustered. With 14 of 19 officials seeing either two or three rate cuts this year, the consensus view could easily shift.
In an analysis for Evercore ISI using methods employed by Fed staff, former top Fed economist John Roberts wrote this week the outlook at this point hinges on whether policymakers dismiss the high inflation readings of January and February as "noise," or as evidence price pressures are receding more slowly - with the one view arguing for three or perhaps even four rate cuts this year, and the other only two.
At this point, he said, faith in disinflation, driven by a sense the economy can grow more without higher prices, appears to be trumping a more hawkish view of the world.
The core of policymakers "appears to be treating the bad news on inflation in January and February as a one-off," Roberts wrote, an interpretation consistent with both an optimistic view of the economy and easier policy ahead.
More from Reuters:
Federal Reserve Chair Jerome Powell says the central bank is not growing more tolerant of higher inflation even though the latest policymaker projections raised the inflation outlook for the year without triggering a tougher monetary-policy response.
But former Fed officials and other analysts see Powell nevertheless approaching a difficult moment trying to reconcile competing economic risks, a divided group of Fed policymakers, and a public now expecting interest rate cuts to start in June.
Upcoming data may well support a June rate reduction if inflation declines convincingly towards the Fed's 2% target between now and then, resuming a trend that encouraged policymakers last year to cap the federal funds rate at the current 5.25%-5.50% and lay the groundwork for easing to begin this year. Others see a slowing economy and weakening job growth on the horizon, pushing the Fed to cut in order to support the labor market.
Yet even if inflation proves more persistent than expected in coming weeks and the economy remains strong, the Fed could still proceed with a June cut by framing it as a potentially one-off adjustment rather than the locked-in beginning of a series of reductions, former Fed Vice Chair Richard Clarida, now a global economic adviser to bond giant PIMCO, wrote this week in assessing the pivotal moment central banks face in their policy communications.
The upfront justification of rate cuts expected to start this summer, Clarida said, would be that policymakers are simply keeping rates in step with the decline in inflation seen since last year, and could cut further as long as inflation continued to fall.
But "if inflation...does not follow the forecasts and becomes entrenched at a plausible 2.5%...the central banks would likely pause their rate cut cycles," Clarida wrote, and depend "on their belief that by keeping policy restrictive long enough, they can credibly forecast inflation returning (eventually) to the 2% target."
An initial cut, explained with language that tilts towards suspending further reductions if inflation does not behave as expected, would hedge the risks facing both sides of the Fed's employment and inflation goals, and assuage the concerns of Fed officials worried most about damaging the current expansion as well as those worried most about embedded inflation.
It would also throw a kink into expectations that 2024 will be the year when the Fed's record-setting inflation battle ends in a steady succession of rate cuts and continued economic growth.
Recent comments from Fed officials have put divergent views on display, with Fed Governor Christopher Waller saying Wednesday he would support keeping policy tighter than expected if inflation data is not encouraging, and Chicago Fed President Austan Goolsbee saying earlier in the week recent high inflation readings don't undercut the trend towards easing price pressures.
At his press conference after last week's policy meeting, he said recent, more elevated price data "haven't really changed the overall story, which is that of inflation moving down gradually on a sometimes-bumpy road toward 2%," comments that left expectations for a June rate cut intact.
Part of that narrative appears driven by policymakers' belief the economy is in a rare moment when the forces that can sometimes disrupt central bankers' best laid plans have been working in the Fed's favor.
Productivity has been growing at a surprising clip, allowing the economy to grow fast without adding to price pressures; a jump in the labor force has also helped the unemployment rate stay low without driving up wages. The Fed's most recent set of economic projections continued that rosy view of the world, with faster economic growth and a slightly lower unemployment rate than anticipated as of December, and inflation still falling to the 2% target over the next two years though at a slightly slower pace.
Skepticism about that view is likely to grow, however, if Friday's data and other incoming inflation figures are higher than anticipated - and not just from steady inflation hawks like Waller but from others as well, like Atlanta Fed President Raphael Bostic, a voter this year on interest rate policy.
In comments to reporters last week, Bostic said he had already scaled back his expectations for 2024 from a half-point reduction in the policy rate to a quarter point cut, "and I'm looking sort of later in the year than I might have not otherwise" to approve it.
Upcoming inflation and economic data could well sway policymakers in either direction.
Recent projections showed a group that was sharply divided. While the baseline remained intact at three quarter-point rate cuts this year, the split was 10 to 9 between those policymakers seeing at least that many, and those seeing less easing ahead.
SHIFTING CONSENSUS
But they were also tightly clustered. With 14 of 19 officials seeing either two or three rate cuts this year, the consensus view could easily shift.
In an analysis for Evercore ISI using methods employed by Fed staff, former top Fed economist John Roberts wrote this week the outlook at this point hinges on whether policymakers dismiss the high inflation readings of January and February as "noise," or as evidence price pressures are receding more slowly - with the one view arguing for three or perhaps even four rate cuts this year, and the other only two.
At this point, he said, faith in disinflation, driven by a sense the economy can grow more without higher prices, appears to be trumping a more hawkish view of the world.
The core of policymakers "appears to be treating the bad news on inflation in January and February as a one-off," Roberts wrote, an interpretation consistent with both an optimistic view of the economy and easier policy ahead.
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group