Powell says he expects inflation to move down but isn't completely confident in this forecast

By Greg Robb

Next move is unlikely to be a hike, Fed chair says

Federal Reserve Chair Jerome Powell said Tuesday that he sees inflation retreating in the coming months and pushed back on the expectation of some economists that the next move by the central bank will be to raise interest rates.

"I expect inflation will move down," Powell said during a discussion at a bankers' conference in Amsterdam.

He said he expected inflation to cool to the level of the low monthly inflation prints seen late last year. However, he said he wasn't completely confident in this outlook.

"I would say my confidence [in that forecast] is not has high as it was, having seen the readings in the first three months of the year," Powell said.

"We're just going to have to see where the inflation data fall out," he added.

Although he acknowledged there was a "small chance" the Fed might have to raise interest rates again, he said: "I don't think that it's likely, based on the data, that the next move we make would be a rate hike."

He added: "I think it's more likely that we'll be in a place where we hold the policy rate where it is."

This was a repeat of his message from his press conference earlier this month, when he said that the Fed needs to be patient and keep rates steady for a longer period of time to ensure that inflation comes down.

The Fed's benchmark rate is now in the range of 5.25% to 5.5%. Powell said he thinks this level of rates is restrictive, or pushing down demand. Many economists and market analysts question this view, partly in light of financial market conditions.

Powell acknowledged that many homeowners and businesses are not feeling the effects of the higher Fed rates, because they locked in the ultralow interest rates seen during the pandemic.

But overall, the current level of rates is "working," he said, by weighing on consumer spending.

He noted that rates are at the highest level in two decades. "I think that it may be that it takes longer than expected to do its work and bring inflation down," he said.

Asked about the April producer-price-index data released earlier Tuesday, Powell characterized it as "quite mixed." He noted that March data was revised lower.

In April, the PPI rose 0.5%, much higher than the 0.3% that had been expected. But the change in the index in March was revised from a 0.2% gain to a 0.1% decline.

"I wouldn't call it hot," Powell said.

Stocks SPX DJIA were slightly higher after Powell's comments. The 10-year Treasury note yield BX:TMUBMUSD10Y was down slightly to 4.461%.

-Greg Robb

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05-14-24 1122ET

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