Powell signals a June pause, says Fed can afford to watch data

Federal Reserve Chair Jerome Powell gave a clear signal he is inclined to pausing interest-rate increases next month and said that tighter credit conditions could mean the policy peak will be lower.

“We’ve come a long way in policy tightening and the stance of policy is restrictive and we face uncertainty about the lagged effects of our tightening so far and about the extent of credit tightening from recent banking stresses,” Powell told a Fed conference Friday in Washington. 

“Having come this far, we can afford to look at the data and the evolving outlook to make careful assessments,” he said, reading from prepared notes.

Investors pared bets on a rate hike next month to around 17% after Powell’s comments compared with 33% before he spoke.

Officials raised rates by a quarter percentage point earlier this month to a target range of 5% to 5.25% and signaled they could pause. They next meet June 13-14. 

The US central bank has increased interest rates 5 percentage points in little more than a year, undertaking its most aggressive tightening campaign in decades to quell high inflation.

Some officials have suggested the Fed should keep raising rates because they’ve not seen convincing evidence that price pressures are cooling fast enough.

But Powell signaled that he isn’t in that camp, citing headwinds to the economy stemming from the recent collapse of four regional U.S. banks.

“While the financial stability tools helped to calm conditions in the banking sector, developments there on the other hand are contributing to tighter credit conditions and are likely to weigh on economic growth, hiring and inflation,” Powell said. “As a result our policy rate may not need to rise as much as it would have otherwise to achieve our goals. Of course, the extent of that is highly uncertain.”

Policymakers in March projected rates peaking at 5.1% according to their median outlook — the level reached earlier this month — though seven other officials forecast they would need to go higher. The forecasts will be updated in June.

The conference, held at the Fed’s headquarters in Washington, honors the memory of former Fed economist Thomas Laubach, who died in 2020 at the age of 55.