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Rates Higher for Longer

While speaking to a policy forum on U.S.-Canada economic relations, Fed Chair Jerome Powell said that recent data has “clearly not given us greater confidence” that inflation is moving toward the Fed’s 2% target. This includes hotter than expected consumer inflation readings in recent months, especially as measured by the Consumer Price Index.

Remember, the Fed aggressively hiked their benchmark Fed Funds Rate (the overnight borrowing rate for banks) eleven times between March 2022 and July 2023 to slow the economy and curb runaway inflation. The Fed has held rates steady as of their meeting last September because inflation had been showing good progress lower before stalling in more recent reports.

What’s the bottom line? Powell said it will likely take longer to achieve confidence that inflation is progressing lower, signaling that the timing for rate cuts will probably be delayed and rates will be higher for longer until confidence is restored. This more hawkish tone was echoed by other Fed members last week as well, including New York Fed President John Williams and Atlanta Fed President Raphael Bostic.