Powell's latest speech: There is still room for interest rate cuts this year

On April 3, the Wall Street Journal reported that Powell still believes that the Federal Reserve has room to cut interest rates this year.

Federal Reserve Chairman Jerome Powell said in a speech at Stanford University on Wednesday that stronger-than-expected economic activity this year has not changed the Fed's broad expectation that falling inflation will allow the central bank to cut interest rates this year.

Powell said recent data did not materially change the overall picture, which is still one of solid growth, a strong but rebalancing job market and inflation on a sometimes bumpy path back toward 2%.

According to the New York Times, this year is an important year for the Federal Reserve. After months of rapid inflation, price increases have finally begun to fall. This means that central bank governors may soon be able to lower interest rates from their highest level in 20 years. The Federal Reserve raised interest rates to 5.3% from March 2022 to mid-2023 to stabilize the economy and curb inflation.

The New York Times said there are two reasons why inflation will cool down quickly in 2023. One is because of the recovery of the global supply chain. The other is because the prices of some services (such as rent) are no longer rising sharply. The decline in service prices is partly related to wage growth, which has slowed as more workers join the labor force, thanks to a strong influx of immigrants. Powell said there may be more supply-side benefits, and he pointed out that the Fed's policies may also put pressure on demand for major consumer goods such as automobiles and the labor market.

However, determining when and how much to cut rates is a tricky matter. Inflation has slowed more slowly in recent months, and the Fed does not want to cut rates too early and fail to fully control price increases. Investors had initially expected the Fed to cut rates at the beginning of the year, but now believe the first rate cut will come in June or July as officials wait for more evidence that inflation has actually slowed.

Powell said it was too early to tell whether inflation was in the works based on recent data. "We do not expect that it would be appropriate to lower the policy rate until we are more confident that inflation is moving toward 2% on a sustained basis," Powell said. He added that given the strength of the economy and the progress of inflation to date, we have time to let the incoming data guide our policy decisions. He called lowering inflation a "bumpy road."

Atlanta Fed President Raphael Bostic said in a separate interview with CNBC on Wednesday that there may be no rate cuts before the fourth quarter of this year, according to Reuters. Bostic expects only a 25 percentage point rate cut in 2024, far lower than the three or more rate cuts expected by most of his colleagues.

"We've seen inflation become more volatile," Bostic said. "If the economy develops as I expect, with continued strength in gross domestic product and employment, and inflation slowly coming down over the course of the year, I think it would be appropriate for us to begin cutting rates by the end of the year, in the fourth quarter."

Still, few other Fed officials have been as specific about the interest rate outlook in public remarks as Bostic.

Fed Governor Adriana Kugler agreed with the assessment of Bostic, Powell and other officials that recent progress in reducing inflation has been "slow." Still, "I expect disinflationary trends to persist and help pave the way for rate cuts this year," Kugler said in comments at Washington University in St. Louis. "If disinflation and labor market conditions develop as I currently expect, then some reductions in the policy rate this year would be appropriate," she said.

The Fed held its benchmark overnight rate steady in a range of 5.25% to 5.50% last month, a range it has held since July.