Federal Reserve Chair Jerome Powell reaffirmed the central bank’s cautious approach before the House Financial Services Committee, emphasizing that interest rate cuts will remain off the table until inflation is firmly on track to reach the Fed’s 2% target. Powell’s remarks follow fresh economic data showing a stronger-than-expected rise in consumer prices for January, adding to uncertainty over the timing of potential policy easing.
Inflation Rise Complicates Fed’s Rate Cut Plans
The latest Consumer Price Index (CPI) report showed inflation rising at an annual rate of 3% in January, up from 2.9% in December, signaling persistent price pressures that could delay anticipated interest rate cuts. The unexpected uptick, driven by higher housing, food, and energy costs, has cast doubt on the Federal Reserve’s timeline for policy easing.
| Event | Actual | Previous | Consensus |
|---|---|---|---|
| Core Inflation Rate MoM (JAN) | 0.4% | 0.2% | 0.3% |
| Core Inflation Rate YoY (JAN) | 3.3% | 3.2% | 3.1% |
| Inflation Rate MoM (JAN) | 0.5% | 0.4% | 0.3% |
| Inflation Rate YoY (JAN) | 3.0% | 2.9% | 2.9% |
| CPI (JAN) | 317.67 | 315.61 | 317.46 |
| CPI s.a (JAN) | 319.086 | 317.603 | 318.2 (Forecast) |
Fed Chair Jerome Powell, speaking before the House Financial Services Committee, acknowledged progress in reducing inflation over the past two years but cautioned that recent data suggests price stability remains a challenge.
“We are seeing inflation move in the right direction, but the job is not yet done,” Powell told lawmakers. “We will remain patient and data-dependent in our approach.”
Market Reactions and Interest Rate Expectations
Markets had previously priced in multiple rate cuts in 2025, with some expectations of an initial reduction as early as March. However, the latest inflation data and Powell’s measured tone suggest policymakers may take a more cautious approach. The Federal Reserve has consistently emphasized the need for “greater confidence” that inflation is on a sustained downward trajectory before easing policy.
Atlanta Fed President Raphael Bostic reinforced this stance, stating that he is “not comfortable” with cutting rates until there is “more clarity” on inflation and potential fiscal policy shifts under the current administration (source: Reuters).
Fed’s Tightrope: Balancing Inflation Control and Economic Growth
The Federal Reserve faces the challenge of controlling inflation while maintaining broader economic stability. While higher interest rates have helped cool inflation from its 2022 peak, they have also weighed on economic growth, corporate borrowing, and consumer spending.
Speaking before the House Financial Services Committee, Jerome Powell acknowledged this delicate balance. He emphasized that while the Fed does not want to keep rates elevated longer than necessary, it must ensure inflation does not reaccelerate, reinforcing the central bank’s data-dependent approach to policy decisions.
What’s Next? Key Data Points That Could Shape Fed’s Next Move
With inflation data now in focus, markets will closely watch the Federal Reserve’s March meeting for further guidance on the timing of potential rate cuts. While Powell’s remarks signal a patient approach, upcoming economic reports such as the February CPI release and job market data will play a crucial role in shaping the Fed’s next steps.
Any signs of persistent inflation or labour market strength could reinforce the Fed’s cautious stance, while weaker data may open the door for policy easing later in the year.
