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Fed's Powell: 'We'll need to be patient' on rates

Fed Chair Jerome Powell said Tuesday his confidence that inflation will keep cooling is not as high as it was at the start of the year, and that the central bank will need to be patient before lowering interest rates.

"We did not expect this to be a smooth road, but these [inflation readings] were higher than I think anybody expected," Powell said during a panel in Amsterdam. "What that has told us is that we'll need to be patient and let restrictive policy do its work."

Powell said that he expects inflation will move back down on a monthly basis to levels that were more like the lower readings of late last year.

"[But] I would say my confidence in that is not as high as it was having seen these readings in the first three months of the year."

Powell's comments came just hours after a fresh reading on wholesale prices for April came in hotter than expected.

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Wholesale prices increased 0.5% month over month in April, above the 0.3% consensus had expected, per the latest release of the Producer Price Index, which measures prices producers receive for goods produced.

"Core" PPI, which strips out the volatile food and energy categories, also rose 0.5% in April, above estimates for a 0.2% increase.

Notably, however, March's monthly price increase was revised lower to a decrease of 0.1% from an initial reading of a 0.2% increase.

"I would say [the PPI reading was] actually quite mixed," Powell said Tuesday. "You know, the headline numbers were higher, but they were backward revisions ... I wouldn't call it hot."

In terms of when the Fed will cut interest rates, Powell noted the Fed's current restrictive stance may take "longer than expected to do its work and bring inflation down."

"I do think it's really a question of keeping policy at the current rate for a longer time than had been thought," Powell said.

Powell's rhetoric fell in line with recent commentary from other Fed officials. On Monday, Fed Vice Chair Philip Jefferson said the Fed would need "additional evidence" inflation is falling to the Fed's 2% target before cutting interest rates.

“Until we have that, I think it is appropriate to keep the policy rate in restrictive territory," Jefferson said said during a question and answer session at the Cleveland Fed.

U.S. Federal Reserve Chair Jerome Powell attends a press conference in Washington, D.C., the United States, on May 1, 2024. The U.S. Federal Reserve on Wednesday left interest rates unchanged at a 22-year high of 5.25 percent to 5.5 percent as recent consumer data indicates that inflation continued to tick up. (Photo by Liu Jie/Xinhua via Getty Images)
Federal Reserve Chair Jerome Powell at a May 1 press conference. (Liu Jie/Xinhua via Getty Images) (Xinhua News Agency via Getty Images)

Powell's comments came ahead of another reading of inflation on Wednesday morning, with the release of the April Consumer Price Index (CPI) expected at 8:30 a.m. ET.

Wall Street expects an annual gain of 3.4% for headline CPI, which includes the price of food and energy, a decrease from the 3.5% headline number in March. Prices are set to rise 0.4% on a month-over-month basis, in line with March's rise.

On a "core" basis, which strips out food and energy prices, inflation is expected to have risen 3.6% year over year, a slowdown from the 3.8% increase seen in March. Monthly core price increases are expected to clock in at 0.3%, down from 0.4% in the prior month.

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