Fed wants to see more positive inflation to cut interest rates

The US Federal Reserve (Fed) is not ready to cut interest rates until it sees "more positive inflation indicators", according to Chairman Jerome Powell.

Mr. Powell delivered the message at the San Francisco Fed conference on March 29, saying they needed more evidence before deciding to cut interest rates for the first time since inflation rose to a four-decade high two years ago.

Also on March 29, the US government announced that the personal consumption expenditures price index (PCE) - the Fed's preferred inflation measure - increased 0.3% in February compared to January and increased 2.5% compared to the same period in 2023, higher than the 2.4% increase in the first month of the year.

Energy prices jumped 2.3%, pushing overall goods prices up 0.5% in February. By contrast, services inflation - a basket of prices that includes hotel stays, restaurant meals, medical care and concerts - slowed to 0.3%, from 0.6% in January. Opinion surveys still show public discontent that high prices are weighing on households despite strong wage growth.

Fed Chairman Jerome Powell speaks in Washington, US, December 13, 2023. Photo: Reuters — Fed Chairman Jerome Powell speaks in Washington, US, December 13, 2023. Photo: *Reuters*

Excluding food and energy costs, the core PCE rose just 2.8% last month from a year earlier, the slowest pace in nearly three years. Economists view the core PCE as an indicator of future inflation trends. Powell said at the conference that he expects "inflation to decline on a sometimes bumpy path to 2%."

In 2023, the Fed will raise its benchmark interest rate 11 times, to a 23-year high of around 5.4%. The monetary tightening campaign has gradually cooled inflation from a peak of 9.1% in June 2022, but it is still above the Fed's 2% target.

At the same time, the US economy has not entered a recession as expected, but has grown at a rate of 2% or more for six consecutive quarters. The job market is strong, with the unemployment rate below 4% for more than two years, the longest streak since the 1960s.

The combination of solid growth and slowing inflation has raised hopes that the Fed will make a "soft landing" - curbing inflation without triggering a recession. It has signaled that it expects to reverse course and cut interest rates three times this year. But at the same time, Mr. Powell said the Fed is under no pressure to cut rates and may continue to wait and see how inflation plays out.

Phien An ( according to AP )

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