Granted that the remarks weren’t delivered at the most high profile venue–a panel discussion at the Foreign Bankers Association meeting in Amsterdam–but I read Federal Reserve chairmen Jerome Powell as saying that the U.S.central bank might hold interest rates steady for longer than now expected by WallStreet.
Ahead of new inflation data from the Consumer Price Index for April due tomorrow, anyway. On the day before the meeting economists were expecting the annual inflation rate at both the all-items and core levels to have dropped by 10 or 20 basis in April.
Speaking in Amsterdam, Powell said officials had been surprised by recent inflation readings. The Consumer Price Index, which is set for release on Wednesday, came down rapidly in 2023 but has been stuck above 3% this year. The Fed’s preferred measure, the Personal Consumption Expenditures index, is slightly lower, but it, too, remains well above the Fed’s 2% inflation goal.
“We did not expect this to be a smooth road, but these were higher [readings] than I think anybody expected,” Powell said. “What that has told us is that we will need to be patient and let restrictive policy do its work.”
He also noted that it could be taking longer for policy to work this time around, in part because homeowners and businesses locked in very low interest rates when borrowing costs were at rock bottom in the 2010s and in 2020. “The U.S. economy is different this time,” Powell said.
Wall Street hopes seem to be creeping toward a belief in 2 interest rate cuts in 2024–again. The Fed seems to be suggesting one cut is more likely.
Today, May 14, ahead of the inflation report, the Standard & Poor’s 500 moved closer to another all-time record high.
It’s hard for me to see stocks moving up very strongly from here during the rest of 2024 without good inflation news tomorrow and two interest rate cuts in 2024.
In my opinion, though, one cut in 2024 is a much ore likely scenario.
