• Fed Chair Jerome Powell said the U.S. economy has not seen inflation come back to the central bank’s goal, pointing to the further unlikelihood that interest rate cuts are in the offing anytime soon.
• “The recent data have clearly not given us greater confidence, and instead indicate that it’s likely to take longer than expected to achieve that confidence,” he said during a central banking forum.

The key takeaway - Federal Reserve Chair Jerome Powell acknowledged on Tuesday that firm inflation during the first quarter has cast doubt on the possibility of lowering interest rates this year without signs of an unexpected economic slowdown. Powell's remarks signal a clear shift in the Fed's outlook following three consecutive months of stronger-than-anticipated inflation readings, which dashed hopes for pre-emptive rate cuts this summer. Despite initial optimism for rate cuts earlier in the year, Powell indicated that recent data have not instilled greater confidence in the Fed, suggesting that rate cuts may be delayed until later in the year. Powell emphasized that the Fed is not considering rate increases at this time and would leave rates at their current level "as long as needed" if inflation proves more stubborn.

Market participants reacted to Powell's comments, with the S&P 500 falling slightly and Treasury yields rising. The Fed's preferred gauge of inflation, expected to be released next week, is likely to show core prices rose 2.8% in March from a year earlier, but recent data have indicated an increase in inflation rates, complicating the Fed's decision-making process. Analysts now anticipate rate cuts to begin in July, September, or December, with only one or two cuts expected this year. Despite the challenges posed by firm inflation, Powell expressed confidence in the gradual moderation of wage pressures, which could be a key factor in the Fed's assessment of future inflation trends.