US Economy News Today: Powell Says Recent Inflation Data Does Not Offer Confidence

Fed's Powell Confirms Higher For Longer Interest Rates

Federal Reserve Chair Jerome Powell confirmed what financial markets had already mostly guessed: the Fed is likely to respond to the recent spurt of inflation by keeping its benchmark interest rate higher for longer.

In his first public remarks in the wake of last week’s official reports on inflation showing consumer prices falling more slowly than expected, Powell said recent data on the economy has not given policymakers confidence that inflation is firmly on the way back down to the central bank’s goal of a 2% annual rate. That means the Fed will delay any cuts to its interest rate, which it has held at a 23-year high to combat inflation. 

However, Powell indicated he thought the rate was high enough at its current range of 5.25% to 5.5%, implying he does not support more rate hikes, as some Fed officials have suggested recently. 

“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,” Powell said. “That said, we think policy is well positioned to handle the risks that we face.”

The remarks marked a change of tone for Powell, who earlier in the year had characterized two hotter-than-expected inflation reports as bumps in the road rather than a reversal of the trend of consumer price increases cooling down.

“Fed Chair Powell moved more decidedly in a hawkish direction as he essentially underscored that the downward trajectory of inflation has essentially stalled,” Quincy Krosby, chief global strategist for LPL Financial, wrote in a commentary.

Economists See Improved Manufacturing Sector in March

Industrial production moved higher in March in what economists said was signs of recovery in the U.S. factory sector. Measurements of industrial capacity utilization also inched higher in March, moving up to 78.4%, its third straight month moving higher. 

It’s the first time in more than a year that industrial production moved higher for two consecutive months, wrote Wells Fargo economists led by Shannon Seery Grein.  

“After spending the better part of the past year in the doldrums, the factory sector is showing signs of life,” Wells Fargo wrote.

The report showed that high-tech production was higher again in March, part of a year-over-year jump in manufacturing that comes as U.S. programs like the CHIPS Act fund increased domestic production efforts.

“High-tech production is rapidly accelerating even as other non-energy manufacturing remains fairly consistent with 2017 levels. This is at least in part due to the recent boom in manufacturing construction activity and push to onshore key products,” Wells Fargo wrote. 

Along with the increase in high-tech production, the upswing in single-family home construction and increased aircraft construction spurred by a travel boom are also factors that will press production higher, wrote Oxford Economics' Bernard Yaros. 

“This still is only a modest expansion, and despite the favorable trends listed above, elevated interest rates, past tightening in lending conditions, and uncertainty around the outcome of the 2024 election will prevent an even stronger performance compared to last year,” Yarros wrote. 

-Terry Lane

Jefferson: Fed Data Points to March PCE Rise

Officials may be anticipating another increase in inflation when the Personal Consumption Expenditures (PCE) price data is released later this month, according to comments from Federal Reserve Vice Chair Philip Jefferson.

In prepared remarks at a Federal Reserve event Tuesday, Jefferson pointed to recent inflation and jobs data that has come in higher than expected, arguing the economy was in an “environment of heightened uncertainty.”

Jefferson said Federal Reserve staff estimates March PCE will come in at 2.7%, slightly higher than the 2.5% inflation rate reported for February. Jefferson also said staff figured core PCE inflation, which excludes volatile food and energy prices, would be at 2.8%, unchanged from the prior month. Jefferson highlighted how these inflation levels were lower than a year ago. 

“While we have seen considerable progress in lowering inflation, the job of sustainably restoring 2% inflation is not yet done,” he said. 

Despite the Fed’s inflation projection, Jefferson said he believed inflation would continue to decline while the Federal Reserve held its interest rates at their current 23-year high levels, potentially resulting in slower first-quarter economic growth. 

“Of course, the outlook is still quite uncertain, and if incoming data suggest that inflation is more persistent than I currently expect it to be, it will be appropriate to hold in place the current restrictive stance of policy for longer,” he said.

-Terry Lane

Housing Starts and Permits Nosedived in March

Homebuilders sharply pulled back on applying for building permits and breaking ground on new projects in March, data from the Census Bureau showed Tuesday.

If builders continued starting homes at the rate they did in March, they’d break ground on 1.32 million in one year, the slowest rate since August. That was a 14.7% drop from a seasonally adjusted annual rate of 1.52 million in February, and below the 1.48 million that forecasters had expected according to a survey of economists by Dow Jones Newswires and the Wall Street Journal.

Building permits, which indicate future activity, also slowed significantly, dropping to a seasonally adjusted annual rate of 1.46 million from 1.52 million in February, also falling short of expectations. 

The slowdown suggests builders could be running into logistical problems despite high demand for their product and an optimistic mood among homebuilders. Mortgage rates running near their highest in decades have had a complex effect on the housing market, making homes less affordable overall, but also making newly-built homes more appealing compared to existing ones as homeowners remain reluctant to sell and abandon low mortgage rates they secured years ago. 

“Builders continue to grapple with challenges stemming from the ‘5 Ls’: labor, lots, legal issues, lumber, and lending,” Odeta Kushi, deputy chief economist at First American, posted on X, the social media platform formerly called Twitter. “‘Higher-for-longer’ mortgage rates are also a major headwind for builders and potential home buyers alike.”