Fed Chair Powell Says Rate Cuts ‘Not in Our Base Case’ — Inflation Still ‘Too High’

Federal Reserve Chairman Jerome Powell does not see the Fed cutting interest rates this year. “Inflation remains too high, and the labor market continues to be very tight,” Powell said, adding: “Financial conditions seem to have tightened, and probably by more than the traditional indexes say.”

Fed Chair Powell Expects No Rate Cuts This Year

Federal Reserve Chairman Jerome Powell indicated during a news conference Wednesday that the Fed will not cut interest rates this year. His statement followed the Federal Open Market Committee (FOMC) meeting where Fed officials decided to raise interest rates by 25 basis points (bps).

Responding to a question about what situation would warrant a rate cut, Powell clarified:

Rate cuts are not in our base case.

Regarding the broader economy and monetary policy, the Fed chairman stressed: “Inflation remains too high, and the labor market continues to be very tight.” He emphasized that he and his colleagues are committed to bringing inflation down to the 2% goal.

Powell also answered a question about how he views the current financial conditions following the failures of several major banks.

“Financial conditions seem to have tightened, and probably by more than the traditional indexes say,” he explained, adding that “traditional indexes are focused a lot on rates and equities, and they don’t necessarily capture lending conditions.” Powell noted that there are other measures that “show some more tightening” if they are “focused on bank lending conditions and things like that.”

The Fed chair emphasized: “The question for us though is how significant will that be, and what will be the extent of it, and what will be the duration of it.” Powell concluded:

We’ll be looking to see how serious is this, and does it look like it’s going to be sustained. If it is, it could easily have a significant microeconomic effect and we would factor that into our policy.

Overall, he insisted: “Our banking system is sound and resilient, with strong capital and liquidity.”

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