US Fed wary of cutting rates too soon: Powell

WASHINGTON – United States Federal Reserve chairman Jerome Powell said Americans may have to wait beyond March for the central bank to cut interest rates as officials look for more economic data to confirm that inflation is headed down to 2 per cent.

In an interview conducted on Feb 1 with CBS news show 60 Minutes that aired on Feb 4, Mr Powell sought to explain the central bank’s rationale for eventual reductions to a broad public audience.

“(The) danger of moving too soon is that the job is not quite done, and that the really good readings we’ve had for the last six months somehow turn out not to be a true indicator of where inflation is heading,” Mr Powell said in the interview with CBS correspondent Scott Pelley, according to a transcript provided by the network.

“We don’t think that’s the case,” he said. “But the prudent thing to do is to just give it some time and see that the data continues to confirm that inflation is moving down to 2 per cent in a sustainable way.”

Mr Powell said it is not likely that the Federal Open Market Committee, the Fed panel that sets interest rates, “will reach that level of confidence” about inflation’s path by its March 19-20 gathering.

Mr Pelley said in a voiceover that Mr Powell suggests the first cut could happen around the middle of 2024, although the transcript of the interview – which included comments that were not aired during the show – does not indicate that.

Treasuries fell across all maturities at the open in Asia as Mr Powell’s comments underscored the likelihood that bond investors had overshot in pricing for rapid rate cuts.

The Fed chief also said he does not expect policymakers to “dramatically” change their 2024 interest rate forecasts, which in December showed that they expect their benchmark lending rate to reach 4.6 per cent by the end of the year, according to their median estimate.

“All but a couple of our participants do believe it will be appropriate for us to begin to dial back the restrictive stance by cutting rates this year,” Mr Powell said.

“And so, it is certainly the base case that we will do that. We’re just trying to pick the right time, given the overall context.”

While inflation has subsided substantially in recent months, Mr Powell has repeatedly emphasised the central bank’s need to see more data before lowering borrowing costs. He indicated last week that a rate cut is unlikely in the first quarter.

The Fed’s preferred inflation metric slowed to a rate of 2.6 per cent by the end of 2023, well below its peak of 7.1 per cent in mid-2022.

While that is still above the Fed’s 2 per cent goal, the labour market remains strong. Data released on Feb 2 showed that unemployment held at a historically low 3.7 per cent in January as employers added another 353,000 jobs.

The timing of 2024’s policy pivot poses unique challenges for the Fed. Rapid price increases have angered Americans, weighed on President Joe Biden’s approval ratings, and thrust Mr Powell and the Fed into election-year politics.

Cutting rates in 2024 subjects the Fed to Republican accusations that the central bank is trying to give Democrats a boost by aiding the economy ahead of the election in November.

Democratic lawmakers, including senators Sherrod Brown and Elizabeth Warren, sent letters last week urging Mr Powell to lower interest rates.

Former president Donald Trump told Fox Business Network on Feb 2 that he would not reappoint Mr Powell, even though he chose him to lead the central bank in 2017.

Mr Powell emphasised, as he has repeatedly in the past, that Fed officials do not factor politics or elections into their policy decisions. “We never do. And we never will,” he said.

“Integrity is priceless and at the end, that’s all you have,” he added. “We plan on keeping ours.”

The Fed’s hiking campaign was the fastest pace of rate increases since former Fed chairman Paul Volcker’s war on inflation in the early 1980s.

But unlike in the 1980s, inflation has fallen sharply with little cost to jobs or growth. BLOOMBERG