Jerome H. Powell, the Federal Reserve chair, said on Friday that inflation continues to be \u201cfar above\u201d the central bank\u2019s target but said policymakers \u201chaven\u2019t made any decisions\u201d about whether to raise rates at their next meeting in June.<\/p>\n
The comments, made at the Fed\u2019s annual Thomas Laubach Research Conference, came as businesses and investors around the world are trying to gauge whether the Fed is preparing to pause its campaign to raise borrowing costs amid signs that inflation is easing and the U.S. economy is cooling.<\/p>\n
Mr. Powell did not offer a clear signal on the path of interest rates, but said the Fed remains committed to bringing inflation closer to the central bank\u2019s 2 percent target.<\/p>\n
\u201cThe data continues to support the committee\u2019s view that bringing inflation down will take some time,\u201d Mr. Powell said.<\/p>\n
Still, Mr. Powell did note that recent turmoil in the banking sector has prompted lenders to pull back on providing credit, which will probably weigh on economic growth. That could reduce the need to raise interest rates as high as they otherwise would need to be lifted.<\/p>\n
But Mr. Powell made clear that the Fed, which meets on June 13-14, has not yet determined its next move.<\/p>\n
\u201cUntil very recently, it\u2019s been clear that further policy firming would be required,\u201d Mr. Powell said. \u201cAs policy has become more restrictive, the risks of doing too much versus too little are becoming more balanced.\u201d<\/p>\n
He added: \u201cSo we haven\u2019t made any decisions about the extent to which additional policy firming will be appropriate.\u201d<\/p>\n
The Fed has raised rates aggressively over the past year, bringing them above 5 percent for the first time in 15 years. While inflation has showed signs of moderating, it is still far higher than the Fed \u2014 and consumers \u2014 would like.<\/p>\n
The two-year Treasury yield, which is indicative of where investors expect interest rates to land, fell more than 0.1 percentage points after Mr. Powell\u2019s comments, having risen by roughly the same amount before he spoke. That was a big single-day swing for an asset that typically fluctuates by hundredths of a percentage point.<\/p>\n
The S&P 500 slumped 0.8 percent from its earlier high, before a slight recovery to leave it trading about 0.2 percent lower for the day, remaining on course for a gain of 1.6 percent for the week.<\/p>\n
Financial markets were also swayed by news elsewhere, including lawmakers\u2019 ongoing challenge to resolve the debt ceiling crisis. Reports that Janet Yellen, U.S. Treasury secretary, recently told bank chiefs that more mergers may be necessary also appeared to spook investors.<\/p>\n
Ms. Yellen\u2019s comments echoed remarks she made last week in Japan, where she told Reuters, \u201cThis might be an environment in which we\u2019re going to see more mergers.\u201d<\/p>\n
Friday\u2019s developments undid some of investors\u2019 expectations about future increases in interest rates, which had come in response to earlier comments from other policymakers.<\/p>\n
The president of the Dallas Fed, Lorie Logan, said this week that the current state of the economy, based on recent data, leaves another rate increase in June a possibility.<\/p>\n
\u201cThe data in coming weeks could yet show that it is appropriate to skip a meeting,\u201d Ms. Logan said in a speech on Thursday. \u201cAs of today, though, we aren\u2019t there yet.\u201d<\/p>\n
In turn, the probability drawn from bets in interest rate markets of a further rate increase next month nudged higher this week, though expectations are still tilted toward the Fed holding interest rates where they are.<\/p>\n
Instead, investors have begun betting on the current level of interest rates remaining where it is for longer. They had been previously pricing in a full quarter-point cut to rates as soon as September, and two subsequent quarter point cuts before the end of the year. They are now betting on two cuts to rates this year, one each in November and December.<\/p>\n