©Reuters
Investing.com — Federal Reserve Chairman Jerome Powell is likely to reiterate his hawkish stance on interest rates and inflation in Congressional testimony this week, ANZ Group analysts said in a note Monday. .
Powell is unlikely to offer any new cues, but he is likely to reiterate that the Fed needs to see more signs of easing inflation before considering cutting rates.
“He has become more hawkish, and the scenario he has been using since the January FOMC meeting – that the Fed is on track for a 2% recovery – is more convincing,” ANZ analysts said in a note. “I expect they will stick to the scenario that they need evidence.”
Analysts at ANZ said the US economy remained in “fairly good shape”, while inflation had eased significantly in recent months. But the decline in inflation was still not enough to inspire confidence in a sustainable return to the Fed's 2% annual target.
The resilience of the U.S. economy gives the Fed plenty of leeway to wait for further signs of easing inflation. Analysts at ANZ said the central bank should feel confident enough to start easing monetary policy by the middle of this year, adding that they believe the Fed's current policy settings are sufficiently restrictive.
Their forecast is in line with broader market expectations for a 25 basis point rate cut in June, the paper said.
Analysts at ANZ also said economic data for February, to be released this Friday, is expected to grow at a slower pace, but still well above what the Fed is comfortable with.
The Fed has kept interest rates at more than 20-year highs since July 2023, a trend that has cooled the labor market and inflation to some extent. However, January's data showed that the U.S. labor market remains largely resilient, while inflation remains persistently well above 2%.
