Fed Chair Jerome Powell Projects Optimism, But Inflation Data Are in the Driver's Seat.

Federal Reserve Chair Jerome Powell has expressed optimism about the economy and maintained that interest rates are restrictive, but investors are increasingly focused on inflation data. Some analysts believe that the inflation numbers will ultimately determine the Fed's actions. While the Fed's policy statement still suggests a bias towards cutting interest rates, if inflation continues to rise, the Fed may need to reconsider this guidance. Powell has left open the possibility of rate increases, stating that the data will determine the peak rate. There are differing opinions within the central bank, with some officials concerned about leaving rates high for too long, while others believe that the economy is strong and inflation could exceed the target. Powell cited reasons to believe that high interest rates are cooling demand, but others worry that interest-sensitive sectors of the economy may sustain a reacceleration of growth that keeps inflation from falling. If inflation remains around 3%, officials may face difficult decisions about policy. Overall, the Fed's view that a rate cut is more likely than an increase is reasonable for now, but there is a possibility that the next move could be towards higher rates. [Extracted from the article]