Fed Chairman Powell: Inflation is expected to continue to cool down, but the decision to cut interest rates is still prudent

U.S. Federal Reserve Board (Fed) Chairman Powell said on the 29th that although the U.S. personal consumption expenditures (PCE) deflator in February showed that the road to inflation decline was somewhat bumpy, he still expected inflation to move towards the 2% target;

The PCE headline deflator rose 2.5% year-on-year in February, slightly higher than the 2.4% increase in January. Although the annual growth rate of the PCE core index fell to 2.8% from 2.9% in January, this reflects an upward revision of the annual growth rate in January and is higher than estimated.

In response, Power said that "it is good to see that the situation is in line with expectations", and this latest data, along with other recent data, shows that the road to inflation has been "bumpy at times".

Personal consumption expenditures rose sharply by 0.8% in February from January, indicating that the U.S. economy continues to be strong. Powell said that in the face of weak global economic growth, the "exceptionalism" of the United States has allowed the Fed to afford to wait, and "we can and will be cautious about deciding [when to cut interest rates] because we can do it."

Power reiterated that policymakers must look at more inflation data before they are confident that inflation is moving toward the 2% target. He pointed out that "will inflation be delayed for more than two months? If inflation does come down, we'll tell you what the Fed will do. That's the basic situation, and that's what we're expecting."

He said that because of solid economic activity, "we don't need to rush to cut interest rates". He also pointed out that the Fed will not overreact because the inflation data at the end of last year was lower than expected, nor because the data at the beginning of this year was stronger than expected.

However, the pace of rate cuts could be dashed by the emergence of a new wave of inflation. Gasoline prices have risen rapidly again in recent months, once again suggesting that price pressures have become more complex.

Fed Governor Waller also said earlier this week that "if there is no unexpected and significant deterioration in the economy", he must see "at least two months of better inflation data" to be confident that inflation may continue to move towards the 2% target. Since the inflation data in February did not improve significantly, it will not start to cut interest rates until at least March and April are good. In terms of timing, a rate cut is unlikely in May, but there is still hope for June, which is also in line with market estimates.

Citigroup economist Hollenhurst stressed that disruptions to shipping in the Panama and Suez Canals, as well as the collapse of the bridge at the Port of Baltimore on the east coast of the United States, meant that product prices were "increasingly at risk of rising"

Some economists have said that interest rates may not need to fall. Wang Qian, a global economist at Vanguard Investment Group, said, "We believe that the inflation rate is likely to remain above the target this year, oscillating between 2.5%~3%, coupled with the long-term trend of economic growth above 2%. I don't think the Fed would be able to declare 'mission accomplished' in such a situation. At this point, the Fed will look at the data, and so will the market."