Price statistics reinforce the theory that high interest rates will continue for a long time, despite fears that Chairman Powell’s resolve may waver – Bloomberg

Federal Reserve Chairman Jerome Powell’s message last week that interest rates would remain high for some time was reinforced by the latest inflation data released on the 26th.

The personal consumption expenditure (PCE) core price index, which the Federal Reserve focuses on, rose 0.3% in March from the previous month. This was an increase of 2.8% compared to the same month last year.

US PCE core price index rises 2.8% year-on-year in March – inflationary pressures continue (2)

Worrying inflation data released for the third month in a row shows progress toward the Fed’s 2% goal has stalled, suggesting the first rate cut could be delayed further. Investors are expecting one or two rate cuts starting in November, but there are growing concerns that there may not be any cuts at all this year.

“Given the high inflation numbers up until March, it’s probably fair to assume that interest rate cuts in the first half of the year are over,” said Ben Ayers, senior economist at Nationwide. “There is also a risk that interest rate cuts may be postponed until 2025 if the economy continues to be resilient, which poses an important downside risk to growth next year.”

Today’s statistics once again highlighted the solidity of the economy. Inflation-adjusted personal consumption expenditures (PCE) increased for the second consecutive month in March, increasing by 0.5% month-on-month, marking strong growth on par with the start of 2023.

In the January-March (first quarter) gross domestic product (GDP) statistics released the day before, the PCE core index, which excludes food and energy, exceeded expectations, sparking concerns that growth in March will be even stronger. was wearing.

U.S. GDP sharply slows down in January-March, inflation accelerates – dampening expectations for a soft landing (3)

“The Fed seems to want to take a wait-and-see approach for now, seeing that policy is already moving in the direction of suppressing the economy,” said Kathy Jones, chief fixed income strategist at Charles Schwab. She said the fact that the PCE core index was “not higher than last month would have been a reason to breathe” in Tuesday’s statistics.

It is widely expected that next week’s Federal Open Market Committee (FOMC) meeting will leave policy interest rates unchanged at the highest level in 20 years. Although the median forecasts of FOMC members will not be released until the June meeting, it is clear that the dot plot of interest rate forecasts will not predict three rate cuts this year as they did at the March meeting.

“The balance of risk has clearly shifted towards higher inflation,” said Derek Tan, an economist at LH Meyer/Monetary Policy Analytics. “The next dot plot is likely to show at least one fewer rate cut this year than expected in March, which means the start of rate cuts will be delayed,” he said.

　　 Chairman Powell said in a panel discussion last week that the Fed could keep interest rates on hold “for as long as necessary” if upward price pressures persist.

Fed Chairman Jerome Powell hints at postponing interest rate cuts – Inflation persists (2)

“It’s inevitable that next week’s FOMC will be more hawkish than it was in March,” said James Knightley, chief international economist at ING. “We will again talk about the expected slowdown in inflation, but we will acknowledge that we need to see that in practice over multiple months before we start easing,” he said.

Original title: Inflation Data Reinforce Powell’s Shift Toward High for Longer (excerpt)