Federal Reserve Chair Jerome Powell provided an optimistic overview of the current U.S. economic state, predicting ongoing above-trend growth and a reduction in inflation. Speaking at a banking event in Amsterdam, Powell indicated confidence in inflation decreasing, despite recent data showing higher-than-expected inflation in the first three months of the year.
“I expect that inflation will move back down … on a monthly basis to levels that were more like the lower readings that we were having last year,” Powell said. However, he acknowledged that his “confidence in that is not as high as it was.”
Powell emphasized that further rate hikes by the Federal Reserve are unlikely, although the likelihood of rate cuts has diminished. “I don’t think that it is likely based on the data we have that the next move that we make will be a rate hike,” he stated. “It is more likely … we hold the policy rate where it is.”
Powell’s remarks were consistent with his previous statements following the Fed’s last meeting. Despite new data indicating faster-than-expected producer price increases in April, Powell described the outcome as “mixed” due to prior data revisions. Investors are still anticipating a potential rate cut in September. Since July, the Fed’s benchmark policy rate has remained steady within a 5.25% to 5.5% range, with no definitive guidance on future reductions this year.
Powell forecasted approximately 2% economic growth for the year, slightly above the Fed’s estimates of the economy’s underlying potential. He highlighted the strength of the labor market, stating it is “very, very strong,” with an unemployment rate below 4% for over two years.
“If you look at a broad range of data … the labor market is about as tight as it was before the pandemic in 2019. And that’s good,” said Powell. He referenced the low unemployment and rising wages of 2019 as benchmarks for the Fed. The potential for declining inflation without significant economic slowdown has been supported by immigration, which has filled job vacancies and contributed to the economy as immigrants become consumers.
“We’re still getting very substantial numbers of people coming into the country and going to work,” Powell noted. He clarified that immigration is not a Fed policy but highlighted its economic impact. “They are getting work permits and they go to work and they’re paying taxes and they’re creating economic output and there are millions of them,” he added.