Powell Suggests Interest Rates Could Stay High for a Longer Period

The Federal Reserve is likely to wait longer than initially expected to cut interest rates given stubborn inflation readings in recent months, the central bank’s top two officials said Tuesday.

Policymakers came into 2024 looking for evidence that inflation was continuing to cool rapidly, as it did late last year. Instead, progress on inflation has stalled or even reversed by some measures.

“The recent data have clearly not given us greater confidence and instead indicate that it’s likely to take longer than expected to achieve that confidence,” Jerome H. Powell, the Fed chair, said at an event in Washington on Tuesday. He did not say when he believed rate cuts would be appropriate.

In a separate speech on Tuesday, Philip N. Jefferson, the Fed’s vice chair, said the central bank should be prepared to delay rate cuts if inflation remains hot. But he stopped short of saying he expected rates will need to stay at their current levels, 5.3 percent, deep into this year. Last month, Fed officials indicated that they expect to cut rates three times by the end of 2024.

Investors have closely watched Fed officials in recent weeks for any hint of changing views on when rate cuts might begin. When the year began, Wall Street analysts expected officials to begin cutting rates in quarter-point increments as early as this spring. That’s because annual inflation had been falling steadily from a high of about 9 percent to about 3 percent, closing in on the Fed’s target.

Now, investors have pushed out expectations for a first rate cut to September, with a cut at the central bank’s meeting in July seen as a coin toss.

In the first months of this year, progress on inflation has stalled. Annual inflation, as measured by the Consumer Price Index, ticked up to 3.5 percent in March. The measure preferred by the Fed, the Personal Consumption Expenditure price index, was up 2.7 percent in February from a year earlier.

Other economic indicators have remained strong. Job growth has consistently exceeded expectations, the unemployment rate has remained low and consumer spending has proved resilient. That has given policymakers confidence that they can keep interest rates higher without threatening to cause a recession.

“My baseline outlook continues to be that inflation will decline further, with the policy rate held steady at its current level, and that the labor market will remain strong, with labor demand and supply continuing to rebalance,” Mr. Jefferson said in a speech at a Fed research conference in Washington.

“Of course, the outlook is still quite uncertain, and if incoming data suggest that inflation is more persistent than I currently expect it to be, it will be appropriate to hold in place the current restrictive stance of policy for longer,” he added. “I am fully committed to getting inflation back to 2 percent.”