New US inflation knowledge ‘alongside the traces’ of what Fed desires, Powell says

New US inflation knowledge ‘alongside the traces’ of what Fed desires, Powell says

By Howard Schneider and Ann Saphir

WASHINGTON (Reuters) -The most recent U.S. inflation knowledge is “alongside the traces of what we want to see,” Federal Reserve Chair Jerome Powell mentioned on Friday in feedback that appeared to maintain the central financial institution’s baseline for rate of interest cuts this yr intact.

The private consumption expenditures (PCE) worth index knowledge for February, which was launched on Friday, “is what we had been anticipating,” Powell mentioned, and regardless that the numbers confirmed much less of a slowdown than final yr, “you will not see us overreacting.”

The information final month had been “not as little as many of the good readings we acquired within the second half of final yr, however it’s undoubtedly extra alongside the traces of what we wish to see,” Powell mentioned throughout an look on the San Francisco Fed the place he was interviewed by Kai Ryssdal of public radio’s “Market” program.

Powell’s feedback had been in keeping with his remarks after the Fed’s coverage assembly final week, during which he mentioned higher-than-expected inflation in January and February had not modified the sense that worth rises would preserve falling this yr to the central financial institution’s 2% goal.

U.S. Commerce Division knowledge on Friday confirmed the PCE worth index elevated at a 2.5% annual charge in February, up from 2.4% within the prior month. The quantity excluding unstable meals and power costs rose 0.3% on a month-to-month foundation, barely quicker than Powell anticipated when he mentioned final week that core inflation can be “effectively beneath” 0.3% in February.

Lou Crandall, chief economist at Wrightson ICAP (LON:), mentioned the unrounded core PCE determine did are available in slightly below that determine, at 0.26%. “That is nonetheless above their 2% annualized goal, however is not a horrible quantity,” he mentioned.

Certainly, Powell indicated the most recent PCE report didn’t undermine the central financial institution’s baseline outlook, however mentioned with the economic system on a “robust” footing, “which means we do not have to be in a rush to chop.”

The Fed chief could have one other alternative subsequent week to hone his message on the financial coverage outlook, with a second public look within the San Francisco Bay Space on Wednesday at Stanford College, the place he’ll ship ready remarks.

“Whereas we anticipate a extra rigorously worded message with respect to the near-term outlook,” economists at Deutsche Financial institution wrote concerning the coming occasion, “we do not count on a fabric deviation from the messaging popping out of the March 20 FOMC (Federal Open Market Committee) assembly, specifically that the Fed is data-dependent and requires additional proof that inflation is on a path to 2%.”

‘WE WILL BE CAREFUL’

Some particulars of the PCE knowledge for February, economists famous, confirmed enchancment in points of inflation that the Fed considers essential, even because the headline numbers have proven little progress within the first two months of the yr.

The central financial institution final week held its benchmark in a single day rate of interest regular within the 5.25%-5.50% vary and likewise reaffirmed – narrowly – a baseline projection that the speed will fall by three-quarters of a share level by the tip of 2024.

The Fed is predicted to carry charges regular, because it has since July of final yr, at its April 30-Could 1 coverage assembly.

Policymakers by then could have obtained inflation and jobs stories for March, and the preliminary gross home product development estimate for the primary three months of the yr.

Whereas Fed officers have been cautious to say they do not put a lot weight on any single month’s knowledge, the March readings might have an outsized bearing on their coverage dialogue in the event that they affirm – or maybe much more in the event that they contradict – an anticipated job and wage development slowdown and a cooling of housing inflation.

Economists polled by Reuters count on the March jobs report, which will likely be launched subsequent Friday, to indicate continued robust payroll development, with 200,000 jobs added, however with annual wage development, at 4.1%, hitting its slowest tempo since June 2021.

© Reuters. FILE PHOTO: U.S. Federal Reserve Chair Jerome Powell holds a press conference following a two-day meeting of the Federal Open Market Committee on interest rate policy in Washington, U.S., March 20, 2024. REUTERS/Elizabeth Frantz/File Photo

Powell in current weeks has needed to reconcile expectations that charge cuts will start this yr with knowledge displaying enchancment within the inflation numbers had slowed to begin the yr.

“We have to see extra” progress on inflation earlier than slicing charges, he mentioned on Friday. “The choice to start to cut back charges is a really, crucial one … The economic system is robust proper now, and the labor market is robust proper now. And inflation has been coming down. We will and we will likely be cautious about this resolution as a result of we might be.”

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