The PCE inflation data for February showed a slight slowdown in inflation, from 2.4% in January to 2.5% per year, which was met with satisfaction by Fed President Jerome Powell. However, Powell urged caution in making monetary policy decisions, stating that it is not yet time to rush into cutting interest rates. Analysts have noted that inflation appears to be slowing, but when excluding the volatility of food and energy prices, the ‘core’ index actually showed an increase of 0.3% on a monthly basis.
In an interview at the San Francisco Fed, Powell expressed optimism about future interest rates being lower than current levels, but not returning to pre-pandemic levels. He believes that the economy has not been severely impacted by the current high interest rates. Powell emphasized the importance of waiting for more positive inflation data before making significant changes to interest rates, noting that premature rate cuts could cause disruptions, while delaying could harm the economy and job market.
Powell explained that the latest inflation data align with expectations and while the slowdown was less than last year, he believes more ‘good’ inflation data are needed to reach the 2% target. If inflation does not meet expectations, Powell stated that he may keep interest rates at current levels for longer.
Powell stressed the importance of making timely and well-considered decisions regarding interest rates to avoid unnecessary economic harm. Inflation has been a major concern for many countries around the world due to various factors such as supply chain disruptions and rising commodity prices. As such, central banks like the Federal Reserve must carefully monitor this situation and make informed decisions about monetary policy.
Overall, Powell’s comments suggest that while there may be some relief from high interest rates in the near future, significant changes will only occur once more positive inflation data are seen. It is important for policymakers to strike a balance between managing inflationary pressures while also supporting economic growth and job creation.
