Federal Reserve Chair Jerome Powell is expected to maintain a hawkish stance on interest rates and inflation during his testimony before Congress this week, according to analysts at ANZ Group. While Powell is not likely to introduce any new signals, he is anticipated to reiterate the Fed’s stance that more evidence of easing inflation is needed before considering interest rate cuts.
ANZ analysts noted that although the U.S. economy is in reasonably good shape and inflation has eased in recent months, the reduction in inflation is not yet sufficient to ensure a sustainable return to the Fed’s 2% target. However, they believe that the resilience of the U.S. economy provides the Fed with enough room to wait for further signs of easing inflation before adjusting monetary policy. They consider the Fed’s current policy settings to be restrictive enough and expect the central bank to have sufficient confidence by the middle of the year to begin easing monetary policy.
Their forecast aligns with broader market expectations for a 25 basis point rate cut in June, as indicated by the CME Fedwatch tool. Additionally, ANZ analysts anticipate that the nonfarm payrolls data for February, scheduled for release this Friday, will show growth at a softer pace but still above levels deemed comfortable by the Fed.
Despite the Fed keeping interest rates at a over 20-year high since July 2023, recent data has shown resilience in the U.S. labor market, while inflation has remained elevated above 2%. This suggests that while there has been some cooling in the labor market and inflation, the overall economic conditions remain robust.