Federal Reserve Chair Jerome Powell said the latest consumer price data show that while the central bank has made substantial progress toward taming inflation, there is still more work to do.
“I would say we’re close, but not there on inflation,” Powell told the House Financial Services Committee Wednesday in response to a question on the second day of his semi-annual testimony to Congress. “Last year, inflation was 2.6% — so great progress — but we’re not quite there yet,” Powell said, referencing a different inflation gauge than the consumer price index, which came out earlier Wednesday.
“So we want to keep policy restrictive for now,” he added, suggesting interest rates will remain elevated for the foreseeable future.
Wednesday’s fresh data showed consumer prices grew by more than anticipated at the start of the year. The so-called core consumer price index — which excludes food and energy costs — increased 0.4% in January, the largest advance since March.
Following the new data, interest-rate swaps showed traders expected just one quarter-point rate cut this year. Before the CPI report, traders were leaning toward two cuts.
Powell acknowledged the CPI reading came in above nearly every forecast, but he cautioned against over-reacting.
“We don’t get excited about one or two good readings, and we don’t get excited about one or two bad readings,” he said.
Nonetheless, the new data add to years of price increases, exacerbating the ongoing hardship for millions of Americans struggling to stretch their paychecks to cover a higher cost of living. They also underscore the difficulty the Fed has encountered in finishing off the post-covid price surge.
Powell’s single-minded goal has been to stifle inflation after it surged to a four-decade high in 2022, and without significantly damaging growth and jobs. A so-called soft landing after an inflation burst is rarely achieved and would be a remarkable victory.
Trump Policies
Getting there may also be complicated by President Donald Trump’s plans to impose widespread tariffs, cut taxes and restrict immigration.
Trump ordered a 25% tariff on steel and aluminum imports earlier this week, adding to a 10% duty on all Chinese imports and now-delayed levies on goods from Canada and Mexico. He’s also threatened reciprocal tariffs against countries with levies on US imports.
Powell said it’s not the Fed’s role to comment on the wisdom of policies enacted by Congress or the administration, but said it’s possible new policies could prompt the central bank to alter interest rates.
“The underlying economy is very strong, but there’s some uncertainty out there about new policies,” he said. “We’re just going to have to wait and see what the effects of those policies are before we before we think about what we can do.”
After cutting borrowing costs by a percentage point since September, Fed policymakers have said it’s time to take a breather on further reductions to assess the economy and await downward inflation progress.
Earlier Wednesday, President Donald Trump called for lower interest rates, noting it would “go hand in hand with upcoming Tariffs” in a post on Truth Social. Asked about Trump’s post, Powell declined to comment.
Bank Supervision
Powell also said that bank regulatory policy was less volatile before Congress established the vice chair for supervision role, suggesting the Fed could do its job more effectively without it.
“Putting it all in a single person, admittedly, just to recommend to the board — can lead to some volatility in these things,” Powell said.
Vice Chair for Supervision Michael Barr, a Biden-era appointee, said he would step down as the Fed’s top banking cop on Feb. 28 or earlier if a successor is confirmed. Barr plans to remain a Fed governor.
Framework Review
Powell said he believes officials will make appropriate and discrete adjustments to its longer-run policy strategy and expects to wrap up the latest review in late summer of this year.
When asked if the 2020 framework limited the Fed’s policy response to inflation, Powell said, “No.”
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