Powell: Rate cuts will take ‘longer than previously expected’

Federal Reserve Chair Jerome Powell confirmed Wednesday that the central bank is pushing back its plans for rate cuts as inflation plateaus well above the bank’s target.

The Federal Open Markets Committee (FOMC), the central bank committee tasked with setting monetary policy, voted Wednesday to keep the federal funds rate at a range of 5.25 percent to 5.5 percent, where it has been since July. The FOMC cited a “lack of further progress” toward hitting its inflation goal of 2 percent.

“It is likely that gaining such greater confidence will take longer than previously expected,” Powell told reporters.

While the Fed signaled at the end of last year it would start cutting rates in 2024, traders now expect the first rate cuts won’t come until at least November, according to the CME FedWatch Tool.

Powell said it was unlikely that the next policy move would be a rate hike, but noted the central bank is “committed to retaining our current restrictive stance of policy for as long as it’s appropriate, and we’ll do that.”

A series of strong economic data has weakened the central bank’s confidence that inflation is on a path to the Fed’s 2-percent target. Inflation was up 3.5 percent in March from a year ago, according to the latest consumer price index (CPI) reading, ticking up slightly since the start of the year.

While the U.S. labor market is humming along, with 303,000 jobs added in March and a streak of sub-4 unemployment not seen since the 1960s, economic growth fell short of expectations during the first quarter of the year.

“The signal that we’re taking is that it’s likely to take longer for us to gain confidence that we are on a sustainable path to 2 percent inflation,” Powell said, later adding, “Clearly restrictive monetary policy needs more time to do its job.”

Pressure on Powell and the central bank has ramped up as the 2024 election draws closer. Progressive Democrats have pushed Powell to cut rates, and former President Trump has suggested the lifelong Republican chair he appointed during his presidency would cut rates to help Democrats in the 2024 election.

Trump allies may also be crafting a plan to erode the independence of the central bank if he wins the election in November, The Wall Street Journal reported last week. While the Trump campaign said the plan should not be considered an official position, his inability to control the Fed and what it does on interest rates was a source of angst for the former president.

“Read all the transcripts and see if anybody mentions in any way the pending election. It just isn’t part of our thinking. It’s not what we’re hired to do. If we start down that road, again, I don’t know how you stop it,” Powell said.

Updated at 3:38 p.m. EDT.