Federal Reserve Signals Patience on Rate Cuts Despite Cooling Inflation

Federal Reserve officials signalled continued patience on interest rate reductions on Wednesday, even as the latest Consumer Price Index data showed inflation cooling to 3.1% annually — the lowest reading in over two years.\n\nChairman Jerome Powell, speaking at a policy conference in Washington, emphasised that the central bank needs to see "more good data" before gaining sufficient confidence to begin reducing the federal funds rate from its current 23-year high of 5.25-5.50%.\n\nFinancial markets had been pricing in as many as three quarter-point cuts this year, but futures markets shifted to reflect just one or two cuts following the chairman's remarks. The yield on the 10-year Treasury note rose 8 basis points to 4.42% in response.\n\nEquity markets initially fell on the news before recovering, with the S&P 500 ending the session essentially flat. Gold prices, which had been rising on rate-cut expectations, pulled back modestly.\n\nAnalysts at Morgan Stanley noted that the Fed's patience is driven by concerns about services inflation, which has remained stubbornly elevated even as goods price pressures have eased substantially. "The last mile of the inflation fight is proving harder than expected," wrote chief economist Ellen Zentner.\n\nFor currency markets, the Fed's hawkish stance continued to support the US dollar, maintaining pressure on emerging market currencies and commodity-exporting nations whose debt is denominated in dollars.