Powell: Rate Hike 'Unlikely' Next Move As Hope For Cuts Fades

Federal Reserve Chair Jerome Powell vowed repeatedly to bring inflation down to his organization’s preferred 2% during a press conference Wednesday but said that an interest rate hike at the next meeting of the Federal Open Market Committee in June is unlikely.

“I think it's unlikely that the next policy rate move will be a hike,” Powell said immediately following the FOMC’s decision to once again leave rates unchanged. “We [would] need to see persuasive evidence that our policy stance is not sufficiently restrictive to bring inflation sustainably down to 2% over time. That's not what we think we're seeing.”

The committee’s decision to leave rates unchanged was expected after the most recent data showed a 3.5% annualized rate of inflation in March. It was nevertheless not the news the CRE community wanted to hear after months with the base rate at 5.25% to 5.5%. It also pours more cold water on the industry’s hopes for as many as half a dozen rate cuts this year.

“I thought the market was getting totally over its skis when they thought we were going to get five or six rate cuts this year,” BentallGreenOak Chief Economist Ryan Severino said. “That never felt right to me. But we are in a disinflationary environment, and if that persists over the balance of the year, then they'll have more fodder to move later in the year.”

With eight months left in the year, two rate cuts is still a plausible scenario, Severino said.

He expects the rate to settle in roughly the 3% range eventually.

“To me, that just feels appropriate,” he said. “I'd rather see that kind of reasonableness return to the market and not have it swinging wildly from ‘it's so expensive’ to ‘it's so cheap,’ because either extreme produces pretty disruptive outcomes.”

Powell stressed incoming data as a basis for any future rate cuts.

“There are also other paths that the economy could take which would cause us to want to consider rate cuts,” Powell said. “Another path could be an unexpected weakening in the labor market.”

The labor market continues to perform well, however, adding a net 303,000 jobs in March. 

Consumer spending, another metric the Fed watches closely, was up more than expected in March, according to the Bureau of Economic Analysis, with the personal consumption expenditures price index up an annualized 2.7%. Most categories of goods and services saw price increases for the month.

The FOMC also said the central bank will continue reducing its holdings of Treasury securities, agency debt and agency mortgage-backed securities, the purchase of which has served as an economic stimulus. The committee will reduce the monthly redemption cap on Treasurys from $60B to $25B beginning in June.