In an interview on CBS’ 60 Minutes, Powell said that although the US had a “strong” economy and labour market, and inflation was “already coming down”, the bank wanted to ensure the latter was moving in a “sustainable” way towards its 2% target.
Last week (1 February), the Fed opted to hold interest rates at 5.25%-5.5%, meeting expectations.
Federal Reserve holds rates steady as Jerome Powell dampens March cut hopes
Markets had been optimistic of interest rate cuts early in 2024, after Powell took a more dovish monetary policy tone at the end of last year, but the chair tempered expectations at the latest meeting, stating that inflation was still “too high” to cut rates yet and indicated a mid-year timeline for cuts.
In the CBS interview, Powell was pressed by Scott Pelley about when rate cuts would begin, and the chair reiterated that this was data dependent.
“Basically, we want to see more good data. It is not that the data are not good enough. It is that there is really six months of data,” Powell said.
“We just want to see more good data along those lines. It does not need to be better than what we have seen, or even as good. It just needs to be good. And so, we do expect to see that.”
Powell said the Fed was mainly concerned with jobs and the real economy.
US far exceeds forecasts with 353,000 jobs added in January
Last week’s US nonfarm payroll employment far exceeded expectations, with an increase of 353,000 in January, according to data from the US Bureau of Labor Statistics, coming in nearly twice as high as the 180,000 forecast.
When asked what the risk of “moving too soon” on cuts was, Powell explained the “danger of moving too soon is that the job is not quite done, and that the really good readings we have had for the last six months somehow turn out not to be a true indicator of where inflation’s heading”.
While Powell said he did not think this would be the case, to be patient was the “prudent thing to do” as there was still the risk of sparking inflation if cuts were rolled out too soon.
“I think more likely if you move too soon, you would see inflation settling out somewhere well above our 2% target,” he said.
“So, we think we can be careful in approaching this decision just because of the strength that we are seeing in the economy.”
Equally, the risk of hazard of moving too late was that policy “would be too tight”.
“And that could easily weigh on economic activity and on the labour market”, in turn causing a recession, Powell conceded.
Read the full article here
