Federal Reserve Chair Jerome Powell acknowledged that inflation has reduced policymakers' confidence that price pressures are ebbing. However, he said price growth will likely resume cooling this year, but avoided offering a timeline for rate cuts.
Powell's remarks reflected a broader shift in thinking at the Fed toward holding borrowing costs at a two-decade high for longer. That change in tune — first voiced last month — represented the culmination of several months of firm increases in inflation, hiring and consumer spending that has also led investors to pare back bets from roughly six rate cuts this year to just one.
Policymakers left interest rates unchanged in a range of 5.25%-5.5%, where they've been since July. The Fed chief also established a high bar for further rate hikes, saying it's unlikely that the next policy move will be a rate increase. Officials would need to see “persuasive evidence” that policy isn’t sufficiently restrictive to bring inflation down to their 2% target to consider raising rates again, Powell added.
Powell’s comments soothed investors’ fears that the central bank leader would more forcefully lean against rate cuts this year, or even flag a potential hike. Treasury yields slid and stocks briefly rallied during the press conference, moves that were particularly notable after Powell said a rate hike was “unlikely.”
Officials also announced plans to slow the pace at which they’re rolling maturing assets off their balance sheet beginning in June. The cap on Treasury runoff will fall to $25 billion per month from $60 billion while the cap on mortgage-backed securities will remain at $35 billion.
In the six weeks since the Fed’s last meeting in March, officials have increasingly expressed concern over incoming data that appeared to show inflation stalling out — or even reaccelerating. The central bank’s preferred gauge, the personal consumption expenditures index, rose 2.7% in March from a year earlier. That compared to a 2.5% advance in January.
Policymakers explicitly acknowledged that data by adding a line to their post-meeting policy statement noting the “lack of further progress” toward their inflation goal in recent months.