On the 12th (local time), Jerome Powell, Chairman of the U.S. Federal Reserve (Fed), stated that the Fed is still uncertain about whether it is time to lower interest rates.
Powell made this statement at a press conference following a two-day Federal Open Market Committee (FOMC) meeting.
Earlier, the Fed had frozen the federal funds (FF) rate target at 5.25~5.5%, its highest level in 23 years, and signaled one rate cut this year and four next year through dot plots.
Continuing Uncertainty Over Rate Cut
According to CNBC, Powell said the Fed is still uncertain about whether to start lowering interest rates.
Although the May Consumer Price Index (CPI) announced by the Labor Department that morning was confirmed to be 0.1%p lower than market expectations, Powell suggested that the Fed is still uncertain about the inflation slowdown.
He said, “Today’s (CPI) indicators are showing improvement,” and “As you know, they are boosting confidence.”
Powell emphasized, “However, we are not confident enough to start easing monetary policy based on this data.”
He also ruled out the possibility of further rate hikes by the Fed and stated that the Fed believes the current monetary policy is sufficiently restraining the economy.
While Powell did not entirely rule out the possibility of additional rate hikes, he stressed, “None of the FOMC members are assuming a rate hike as the basic scenario, and none are inclined to do so.”
May Employment Trends May Have Been Overstated
Powell pointed out that the Department of Labor’s May employment trends, released on the 7th, may have overstated the labor market situation.
He stated that the number of new hires is likely to be revised down through the announcement of revised figures, suggesting that the significant increase in new employment may be exaggerating the situation.
Powell said, “The labor market is gradually cooling down,” and “It is improving gradually in a more balanced state.”
The number of new hires in May was counted as 272,000, overwhelming the market forecast of 190,000.
Insufficient Data on Inflation
Powell said that the inflation indicators released this year are not yet enough to instill greater confidence that they are moving towards a 2% target.
He emphasized, “To be confident that inflation is moving sustainably towards 2%, the Fed needs more good data.”
In its FOMC statement that day, The Fed assessed that recent inflation trends have achieved a modest additional improvement.
Powell emphasized that although the inflation indicators released earlier this year were higher than expected, the long-term inflation expectations are fixed and recent indicators are improving.
He noted that inflation has eased considerably, but it is still at a high level.
