Lower Rates, At Some Point
Following on from other Fed members over the last few days, Federal Reserve Chair Jerome Powell reiterated that the central bank would wait for clearer signs that inflation is on a downward trajectory before cutting interest rates, even though the recent bump up in prices will not alter their broader course lower.
At a speech at Stanford University in California, Powell said, “On inflation, it is too soon to say whether the recent readings represent more than just a bump”. Adding: “We do not expect that it will be appropriate to lower our policy rate until we have greater confidence that inflation is moving sustainably down toward 2%.”
In the Q&A after his speech, Powell said: “Given the strength of the economy and progress on inflation so far, we have time to let the incoming data guide our decisions on policy. If the economy evolves broadly as we expect, most FOMC participants see it as likely to be appropriate to begin lowering the policy rate at some point this year.”
To underline why the Fed is happy with taking its wait-and-see stance, we had numbers out overnight showing a strong employment sector. The latest ADP employment report showed that the private sector added 184k jobs in March, above the 150k consensus, with an upward revision of 15k jobs on the previous month’s 140k.
However, in contrast to the ADP numbers and the better-than-expected factory ISM numbers earlier this week, headline ISM services fell 1.2 points to 51.4 in March, versus a consensus of 52.8, and a previous of 52.6. This marks the lowest level in the measure since December 2023. The press release noted: "The majority of respondents are mostly positive about business conditions. Respondents remain concerned about inflation, employment, and ongoing geopolitical conflicts”.
Yes, both these numbers are considered volatile, so they will not be at the forefront of the members' minds, but we have non-farm payrolls tomorrow, along with CPI and PPI next week, all of which may aid their decision making.
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