Jerome Powell Delays Rate Cuts as Inflation Stays at 2.6%, GDP Remains Strong

Cal Evans
Jerome Powell

Key Takeaways:

  • Inflation remains at 2.6%, keeping the Fed cautious about cutting interest rates.
  • A tight labor market is contributing to wage growth and inflationary pressure.
  • Strong consumer spending and GDP growth suggest continued economic resilience, reducing urgency for policy easing.

Federal Reserve Chair Jerome Powell is keeping interest rates unchanged as the U.S. economy continues to display strength. With inflation at 2.6%—still above the Fed’s 2% target—tight labor market conditions, and robust GDP growth, Powell signaled that the central bank will remain cautious before initiating any rate cuts.

Over recent months, economic data has pointed to steady consumer demand and resilience in key sectors, reinforcing the Fed’s decision to maintain current policy levels.

Inflation Holds Above Target Amid Sticky Service Prices

While headline inflation has eased from last year’s highs, it remains 0.6% above the Fed’s goal. Core inflation, particularly within services—such as housing, healthcare, and insurance—continues to exhibit price stickiness.

These service-related costs adjust slowly to monetary tightening, meaning that rate reductions would likely have limited immediate impact on inflation. Powell reiterated that the Fed must remain patient to avoid reigniting inflationary pressures prematurely.

Also Read: Powell: Fed Will ‘Wait and See’ on Rate Cuts Amid $1.2 Trillion U.S. Debt Costs

Tight Labor Market Fuels Wage Growth

The U.S. labor market remains strong, with unemployment near historic lows and job openings still plentiful. Wage growth has continued as demand for labor outpaces supply, adding to inflation risks.

Although some moderation in job creation has been noted, Powell stressed that employment conditions remain robust. This tight labor market complicates any near-term policy easing and forces the Fed to proceed cautiously.

Strong Consumer Spending and GDP Growth Underscore Economic Resilience

Consumer spending remains resilient, with retail and service sector demand holding steady. Supported by income growth and stable job security, U.S. households are continuing to drive GDP growth.

With no signs of an imminent recession, Powell emphasized that lowering rates now would be premature. The Fed’s credibility hinges on achieving long-term price stability, and policymakers will not adjust rates without clear, sustained progress on controlling inflation.

Disclaimer: The information in this article is for general purposes only and does not constitute financial advice. The author’s views are personal and may not reflect the views of Chain Affairs. Before making any investment decisions, you should always conduct your own research. Chain Affairs is not responsible for any financial losses

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