Powell signals interest rates may remain high

US Federal Reserve (Fed) Chairman Jerome Powell indicated that the latest data showed that further progress had not been made in returning to the inflation target, indicating that the policy rate could remain high for longer. US Federal Reserve (Fed) Chairman Jerome Powell, in his speech at the Canadian Economy Washington Forum event, recalled that the performance of the US economy last year was "quite strong." Stating that they achieved growth above 3 percent last year due to increased supply supporting strong growth, spending and employment, and the significant decrease in inflation, Powell said, "The latest data show solid growth and continued strength in the labor market, but at the same time, further progress has not been made this year in returning to our 2 percent inflation target." Powell pointed out that the labor market is moving towards a better balance, and stated that surveys of workers and businesses show that the labor market is normalizing. Powell, who noted that the core personal consumption expenditures index, one of the key data the Fed examines, changed very little in March from 2.8 percent in February on an annual basis according to estimates, noted that three- and six-month inflation measurements were above this level. “We need more confidence” Powell reiterated that they needed more confidence that inflation would move sustainably toward 2 percent before easing monetary policy, reminding us that they were looking for more confidence in order not to overreact to the low inflation data obtained in the second half of last year. Powell, who said, “The recent data has clearly not given us more confidence; instead, it suggests that achieving that confidence will probably take longer than expected,” stated that monetary policy is in a good position to deal with the risks they face. Powell pointed out that they can maintain the current level of restriction as long as necessary if high inflation continues, and emphasized that considering the strength of the labor market and the progress made in inflation so far, it would be appropriate to allow the restrictive policy to continue and be guided by data. Stating that the current situation in inflation was not caused by overheated demand, Powell reminded that the supply side had recovered in 2023. "We are looking for evidence that the decline in inflation will be sustained" Bank of Canada Governor Tiff Macklem also said that inflationary pressures continued to decline, so they continued to move in the right direction. Stating that growth, which started to recover in the first quarter of the year in the country, looked quite strong, Macklem explained that they think growth will continue throughout the year. Pointing out that they have had quite good results in the last few inflation data, Macklem said, "There is some downward momentum in inflation. And I think this reflects the fact that the economy has excess supply and is easing price pressures. We are definitely looking for evidence that this will be sustained. That's what we're looking for right now."