Powell Says Inflation Remains Too High

Jerome H. Powell, the Federal Reserve chair, said on Friday that inflation continues to be “far above” the central bank’s target but said policymakers “haven’t made any decisions” about whether to raise rates at their next meeting in June.

The comments, made at the Fed’s 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.

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’s 2 percent target.

“The data continues to support the committee’s view that bringing inflation down will take some time,” Mr. Powell said.

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.

But Mr. Powell made clear that the Fed, which meets on June 13-14, has not yet determined its next move.

“Until very recently, it’s been clear that further policy firming would be required,” Mr. Powell said. “As policy has become more restrictive, the risks of doing too much versus too little are becoming more balanced.”

He added: “So we haven’t made any decisions about the extent to which additional policy firming will be appropriate.”

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 — and consumers — would like.

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’s 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.

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.

Financial markets were also swayed by news elsewhere, including lawmakers’ 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.

Ms. Yellen’s comments echoed remarks she made last week in Japan, where she told Reuters, “This might be an environment in which we’re going to see more mergers.”

Friday’s developments undid some of investors’ expectations about future increases in interest rates, which had come in response to earlier comments from other policymakers.

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.

“The data in coming weeks could yet show that it is appropriate to skip a meeting,” Ms. Logan said in a speech on Thursday. “As of today, though, we aren’t there yet.”

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.

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.