Fed chair Powell sees lower interest rates on the horizon as inflation ebbs, economy bounces ahead

WASHINGTON — US Federal Reserve Chair Jerome H. Powell, in a sweeping endorsement of the US economy’s strength, said on Wednesday that interest rates had peaked and would move lower in coming months, with inflation continuing to fall and an expectation of sustained job and economic growth.

Mr. Powell, speaking after the end of a two-day policy meeting, declined to declare victory in the US central bank’s two-year inflation fight, vouch that it had achieved a sought-after “soft landing” for the economy or promise that rate cuts would come as soon as the Fed’s March 19-20 meeting, as investors had hoped in the runup to this week’s policy decision.

“Inflation is still too high. Ongoing progress in bringing it down is not assured,” Mr. Powell said after the Fed’s policy-setting committee kept the benchmark overnight interest rate in the 5.25%5.5% range and announced that rate cuts would not be appropriate until there is “greater confidence that inflation is moving” towards the central bank’s 2% target.

But in almost every other way during a 48-minute session with reporters Mr. Powell offered an unhedged round of good news about the status of an aggressive war on inflation that many economists felt would tilt the US into recession and throw millions out of work with the highest and fastest rate hikes in roughly 4 decades.

“The executive summary would be growth is solid to strong ... 3.7% unemployment indicates the labor market is strong ... We’ve got six good months of inflation data and an expectation that there’s more to come,” the Fed chief said. “Let’s be honest, this is a good economy.”

Mr. Powell said rate cuts would come once the Fed becomes more secure that inflation will continue to decline from a level it still characterizes as “elevated,” at least on a one-year basis, with the personal consumption expenditures price index, a key measure used by policy makers, at 2.6% on an annual basis as of December.

But he also suggested it was just a matter of time before that conviction kicks in.

Inflation is already below 2% when measured on a seven-month basis and the Fed has pledged rate cuts would begin before the oneyear rate reaches the target level.

After Mr. Powell all but ruled out a cut at the March meeting, investors in contracts tied to the Fed’s policy rate keyed in on May 1 as the day the central bank will begin lowering that rate from the level it has held since last July.

While Mr. Powell’s comments lay out a rosy economic scenario in a presidential election year that could lean heavily on public attitudes about inflation and wages, they were nonetheless a shortterm blow to investors who had been expecting rate cuts to start as early as seven weeks from now.

US stocks fell after Mr. Powell’s comments and closed sharply lower on the day, while the dollar rose against a basket of currencies. US Treasury yields also dropped.

“It is clear that the Fed are in no hurry to ease as rapidly as the market prices, with further promising inflation data still required in order to unlock the first rate reduction,” said Michael Brown, a market analyst at Pepperstone.

The outcome of the meeting also pushed back against calls from labor advocates for reductions in order to protect the current low unemployment rate at a time when some feel there may be developing weaknesses in the economy.

PHILIPPINE SHARES closed lower on Thursday as US Federal Reserve Chair Jerome H. Powell said they were unlikely to cut rates next month following their policy meeting this week.

The benchmark Philippine Stock Exchange index (PSEi) dropped by 23.43 points or 0.35% to 6,623.01 on Thursday, while the broader all shares index declined by 13.46 points or 0.38% to 3,486.03.

“This Thursday, the local market dropped by 23.43 points to 6,623.01 due to negative spillovers from Wall Street overnight as the Federal Reserve downplayed rate cut hopes for March in its first meeting for the year,” Philstocks Financial, Inc. Research and Engagement Officer Mikhail Philippe Q. Plopenio said in a Viber message.

“With the current path of inflation in the US, Fed Chair Jerome Powell stated that the committee is not yet confident to cut rates in their next meeting,” he added.

Asian shares faltered on Thursday after Wall Street took a late spill, while investors stuck to bets for sizable cuts in US interest rates this year even if the kickoff might now be a little later than first hoped, Reuters reported.

The Federal Reserve committee’s decision to hold rates at 5.25-5.5% on Wednesday was no surprise, it took a dovish twist by emphasizing that rates would not be cut until it had more confidence that inflation was truly beaten.

In a media conference, Mr. Powell flatly stated a cut as early as March seemed unlikely, but also conceded that everyone on the committee was looking to ease this year.

“Oil prices spiked following the US-Iran conflict. Since Friday, Iran militants have killed three US soldiers, and this development raises crude supply concerns,” Regina Capital Development Corp. Head of Sales Luis A. Limlingan added in a Viber message.

Most sectoral indices ended lower on Thursday. Mining and oil fell by 135.42 points or 1.46% to 9,111.97; property dropped by 25.13 points or 0.86% to 2,896.36; services went down by 8.83 points or 0.54% to 1,609.46; industrials retreated by 34.67 points or 0.38% to 8,885.31; and holding firms declined by 23.84 points or 0.37% to 6,305.23.

Meanwhile, financials rose by 5.44 points or 0.28% to 1,891.19.

“Among the index members, Century Pacific Food, Inc. was at the top, climbing 3.49% to P34.10. Nickel Asia Corp. lost the most, dropping 2.89% to P4.70,” Mr. Plopenio said.

Value turnover decreased to P4.15 billion on Thursday with 280.66 million issues switching hands from the P6.76 billion with 423.55 million shares traded the previous day.

Decliners outnumbered advancers, 118 to 46, while 55 names closed unchanged.

Net foreign buying climbed to P460.42 million on Thursday from P256.1 million on Wednesday. — with