Fed chair says inflation falling slower than expected

ISTANBUL

US Federal Reserve Chair Jerome Powell Tuesday said inflation has been declining slower than previously anticipated, which could keep interest rates higher for longer than expected.

"These inflation readings were higher than anybody expected," he said at the annual meeting of the Foreign Bankers’ Association in Amsterdam, the Netherlands. "We need to be patient and let restrictive policy do its work."


Powell's comments came soon after US producer inflation in April rose 2.2% annually and 0.5% on a monthly basis, as both figures came above the market estimates of 2.1% and 0.3%, respectively, according to the Labor Department figures released earlier.

Although Powell did not provide any hints about when the Fed would begin lowering interest rates, he said the central bank will be patient and reiterated that he does not expect a rate hike this year despite stubborn inflation.

"Is inflation going to be more persistent going forward? I don’t think we know that yet," he said, adding: "It is more likely that we will be at a place where we hold the policy rate where it is."

He said that the Fed needs to see more macroeconomic data to make a decision on the first interest rate cut.

The Fed on May 1 kept its federal funds rate unchanged in the 5.25%-5.5% target range, as widely expected, which is the highest level in 23 years.

Consumer inflation annually rose 3.5% in March, above market expectations and still above the Fed's target of 2%, while the figure for April will be released on Wednesday.


Most analysts expect the Fed starting to lower interest rates in the third quarter of this year at the earliest.
The probability of a Fed rate cut of 25 basis points at the Fed’s meeting on Sept. 18 stood around 50% as of Tuesday, according to the FedWatch Tool provided by the US-based Chicago Mercantile Exchange Group.