In a recent lecture at Stanford University, Jerome Powell, Federal Reserve Chair, emphasized that the central bank does not intend to start reducing interest rates in haste. He stated that, despite the rise in inflation recorded in January and February, it's too early to discern whether this increase is a mere fluctuation or a sustained trend.
According to Powell, the bank will only consider altering the policy rate once there is reliable evidence of inflation decreasing towards the 2% mark. Powell added, "Considering the current robust state of the economy and improvements in inflation, we can afford to rely on incoming data to guide our policy decisions."
In addition, Powell indicated he still maintains that interest rates have probably reached their highest point in this period of financial tightening. Furthermore, he suggested most Fed officials regard it as probably appropriate to initiate a reduction in rates at some juncture this year.
Powell outlined the future as rather unpredictable, offering the possibility of risks associated with either lowering rates too swiftly or too slowly. He explained, "If we reduce rates too prematurely or too drastically, it could reverse the advancement we've achieved with inflation, eventually requiring a more stringent policy to bring inflation back to 2%."
"But if we ease policy too late or with little effect, it could unnecessarily weaken economic activity and employment," he added. He emphasized that as progress on inflation maintains its momentum and the labor market becomes less stringent, these risks tend to balance out.
In regards to how the monetary policy is ready for either scenario, Powell emphasized that decisions on interest rates will be taken systematically on a meeting-to-meeting basis. The upcoming monetary policy meeting of the Federal Reserve is scheduled for April 30-May 1, during which it's widely expected that the interest rates will remain unchanged.
However, the outlook for the Fed's June meeting is more uncertain. From the current data available from CME Group’s FedWatch Tool, the prediction is a likelihood of 61.0 percent for a quarter point rate cut, against a 36.9 percent chance the rates will remain stable.
