Personal Consumption Expenditures Inflation

Powell: Inflation Falling Slower Than Expected, Fed to Maintain Current Rates

Federal Reserve Chair Jerome Powell reiterated Tuesday that inflation is falling more slowly than expected, prompting the central bank to maintain its current policy stance for an extended period. Speaking at the Foreign Bankers’ Association meeting in Amsterdam, Powell highlighted that the rapid disinflation of 2023 has significantly slowed this year, causing a policy reassessment.

He emphasized the need for patience, allowing restrictive policies to take effect. Despite expecting inflation to decrease, he noted this has not occurred yet. Powell clarified that the Fed does not anticipate raising rates, maintaining the key overnight borrowing rate at 5.25%-5.5%, the highest in 23 years.

In April, headline inflation rose by 0.3% month-over-month (m/m), falling short of the 0.4% m/m market expectations, marking the first downside surprise since October’s CPI report. Core inflation also increased by 0.3% m/m, matching expectations and representing the lowest monthly core print of the year after three consecutive months of higher-than-expected results. Producer Price Index (PPI) data suggests that core Personal Consumption Expenditures (PCE) inflation was likely around 0.24% in April, the smallest increase in 2024 but still potentially too high to justify a Fed rate cut. Meanwhile, retail sales were flat at 0.0% m/m, below the anticipated 0.4% m/m growth, and control group retail sales fell by 0.3% m/m against the expected 0.1% m/m increase, likely leading to downward revisions in GDP tracking for the second quarter of 2024.