U.S. Federal Reserve Chair Jerome Powell said Americans may have to wait beyond March for the central bank to cut interest rates as officials look for more economic data to confirm that inflation is headed down to 2 per cent.
In an interview conducted Thursday with CBS’s 60 Minutes that aired Sunday evening, Powell sought to explain the central bank’s rationale for eventual reductions to a broad public audience.
The “danger of moving too soon is that the job’s not quite done, and that the really good readings we’ve had for the last six months somehow turn out not to be a true indicator of where inflation’s heading,” Powell said in the interview with CBS’s Scott Pelley, according to a transcript provided by the network.
“We don’t think that’s the case,” he said. “But the prudent thing to do is to, is to just give it some time and see that the data continue to confirm that inflation is moving down to 2% in a sustainable way.”
Powell said it isn’t likely that the Federal Open Market Committee, the Fed panel that sets interest rates, “will reach that level of confidence” about inflation’s path by its March 19-20 gathering, echoing remarks he made at a press conference Wednesday.
Pelley said in a voiceover that Powell suggested the first cut could happen around the middle of the year, though the transcript of the interview — which included comments that were not aired during the show — did not indicate that.
Treasuries fell across all maturities at the open in Asia as Powell’s comments underscored the likelihood that bond investors had overshot in pricing for rapid rate cuts.
The Fed chief also said he didn’t expect policymakers to “dramatically” change their 2024 interest-rate forecasts, which in December showed that they expect their benchmark lending rate to reach 4.6% by the end of the year, according to their median estimate.
“All but a couple of our participants do believe it will be appropriate to, for us to begin to dial back the restrictive stance by cutting rates this year,” Powell said. “And so, it is certainly the base case that, that we will do that. We’re just trying to pick the right time, given the overall context.”
What Bloomberg Economics Says ...
“Powell doubled down on the idea that a cut in March is ‘not likely’ given the information he has so far. This makes it crystal clear that his characterization at the post-FOMC press conference that a March cut is ‘unlikely’ was no slip of the tongue. That said, some of his remarks suggest a March cut isn’t off the table, either.” - Anna Wong, chief U.S. economist
The interview offers Powell an opportunity to communicate to a broader audience just days after the Fed’s decision to hold interest rates unchanged at a range of 5.25 per cent to 5.5 per cent. Policymakers on Wednesday cemented the end of their aggressive campaign to push up rates, but have signaled they’re in no rush to cut them.
While inflation has subsided substantially in recent months, Powell has repeatedly emphasized the central bank’s need to see more data before lowering borrowing costs. He indicated last week a rate cut is unlikely in the first quarter.
The Fed’s preferred inflation metric slowed to a rate of 2.6 per cent by the end of last year, well below its peak of 7.1 per cent in mid-2022. While that’s still above the Fed’s 2 per cent goal, the labor market remains strong. Data out Friday showed unemployment held at a historically low 3.7 per cent in January as employers added another 353,000 jobs.
The timing of this year’s policy pivot poses unique challenges for the Fed. Rapid price increases have angered Americans, weighed on President Joe Biden’s approval ratings and thrust Powell and the Fed into election-year politics. Cutting rates this year subjects the Fed to Republican accusations that the central bank is trying give Democrats a boost by aiding the economy ahead of the election.
Democratic lawmakers including Senators Sherrod Brown and Elizabeth Warrren sent letters last week urging Powell to lower interest rates. And former President Donald Trump told Fox Business Network on Friday that he wouldn’t reappoint Powell, even though he chose him to lead the central bank in 2017.
Powell emphasized as he has repeatedly in the past, that Fed officials do not factor politics or elections into their policy decisions. “We never do. And we never will,” he said.
“Integrity is priceless, and at the end, that’s all you have,” he added. “We plan on keeping ours.”
The Fed chair rarely comments on topics beyond monetary policy. He did push back against isolationism, saying the world was looking for American engagement. He also said the US economy has benefited from immigration.
“There’s a real desire for American leadership,” Powell said. “The United States has been the indispensable nation supporting and defending democracy.”
The interview was Powell’s first 60 Minutes appearance since inflation began surging in the second half of 2021. Fed officials attributed rising prices largely to “transitory factors,” but costs for services had also started to rise, a sign that inflation was spreading beyond supply-chain kinks.
Powell was renominated to a second term by Biden in November 2021. The Fed waited to raise rates until March 2022, and then responded aggressively. Over the course of 16 months, the benchmark lending rate jumped from near zero to a range of 5.25 per cent to 5.5 per cent, prompting a surge in borrowing costs for cars, homes and credit cards. Three regional lenders collapsed in early 2023.
The Fed chair said the central bank misread the surge in prices in 2021, blaming it on temporary supply bottlenecks.
“In hindsight, it would’ve been better to have tightened policy earlier. I’m happy to say that,” Powell said. “In the fourth quarter of ‘21, it became clear that inflation was not transitory in the sense that I mentioned. And we pivoted and started tightening.”
The Fed’s hiking campaign was the fastest pace of rate increases since former Fed Chair Paul Volcker’s war on inflation in the early 1980s. But unlike the 1980s, inflation has fallen sharply with little cost to jobs or growth.
Beyond the rate outlook, Powell also weighed in on geopolitical risks, the Chinese economy, federal debt and risks in the commercial real estate sector, according to the interview transcript.
- On geopolitical risks: “There’s a war going on in Ukraine. There’s a war going on in the Middle East. And there’s trouble, potential trouble in Asia. And so, all of those things represent risks. Right now, the effects on the United States are less.”
- On China: “Our economic, you know, our production systems are not deeply intertwined with theirs. So, as long as what happens in China doesn’t lead to significant disruptions in the economy or the financial system, then the implications for the United States — we may feel them a bit, but they shouldn’t be that large.”
- On the US fiscal trajectory: “It is unsustainable. I don’t think that’s at all controversial. And I think we know that we have to get back on a sustainable fiscal path. And I think you’re starting to hear now from people in the elected branches who can make that happen. It’s time that we got back to that focus.”
- On commercial real estate: “We looked at the larger banks’ balance sheets, and it appears to be a manageable problem. There’s some smaller and regional banks that have concentrated exposures in these areas that are challenged. And, you know, we’re working with them. This is something we’ve been aware of for, you know, a long time, and we’re working with them to make sure that they have the resources and a plan to work their way through the expected losses.”