Powell Keeps Rate Cuts on Table But Leaves Timing Less Certain

-- Federal Reserve Chair Jerome Powell kept hopes alive for an interest-rate cut this year while acknowledging that a burst of inflation has reduced policymakers’ confidence that price pressures are ebbing.Treasuries Rally With Fed Not as Hawkish as Feared: Markets Wrap

Policymakers left interest rates unchanged in a range of 5.25%-5.5%, where they’ve been since July. As recently as March, Powell said it would likely be appropriate to start cutting rates “at some point this year” — a phrase he didn’t repeat on Wednesday. Officials also announced plans to slow the pace at which they’re rolling maturing assets off their balance sheet beginning in June. The cap on Treasury runoff will fall to $25 billion per month from $60 billion while the cap on mortgage-backed securities will remain at $35 billion.

While the PCE price index is down from its 2022 peak of 7.1%, the higher-than-hoped inflation figures have raised questions about whether the “last mile” of the Fed’s drive to bring down inflation will be the toughest. “Chair Powell’s base case remains that inflation will resume a downward trend, so I read that as meaning he still sees the likelihood of rate cuts this year,” said Kathy Bostjancic, chief economist at Nationwide Mutual Insurance Co. “So he is still leaning towards rate cuts, but unlikely to be three cuts given we are already one-third into the year.”

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