Jerome Powell, Chair of the U.S. Federal Reserve (Fed), has scuttled the market’s hopes for a cut in the benchmark interest rate.
According to the Wall Street Journal (WSJ) on the 16th (local time), Powell said at an economic forum in Washington, D.C., “Recent indicators have not given us more confidence. Rather, it suggests that it may take more time to gain confidence.”
Chair Powell emphasized, “However, I believe the current policy is in a good position to handle the risks the Fed faces. If inflation becomes more stubborn, we will maintain the interest rate at the current level as needed.”
Furthermore, he added, “Considering the strength of the labor market and the progress of inflation so far, it is appropriate to give more time for limited policies to take effect. The Fed is ready to cut interest rates if the economy slows sharply.”
Powell referred to the recent indicators of the Consumer Price Index (CPI) and retail sales for March. The March CPI was recorded as having risen 3.5% compared to last year. The rise exceeded market expectations and was the highest in six months. Additionally, retail sales increased by 0.7% compared to the previous month, proving that the U.S. economy is stronger than expected.
Following Powell’s remarks, Wall Street showed mixed reactions, while the dollar and gold, representing safe assets, rose. The yield on 10-year U.S. Treasury bonds traded at 4.65%, and the 2-year yield briefly broke through 5%. The CME Group’s FedWatch, which tracks the path of the benchmark interest rate, showed a 79.9% chance of a rate freeze in June. The market seems to have virtually given up on expectations of a cut in June.
Rose Mayfield, an investment strategist at Bearde Investment Bank, explained, “Powell’s remarks did little to calm the market’s pessimism. The market has reached a point where it questions whether an interest rate cut will happen this year.”
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