Federal Reserve Chairman Jerome Powell: Q1 Inflation Shows No Progress, Patience Required for Further Evidence of Cooling

Following the release of the PPI, U.S. Treasury yields initially spiked but soon retreated. After Powell’s speech, yields briefly narrowed their decline. The U.S. PPI prompted a short-term rise in the dollar index.

Powell expressed expectations for inflation to decrease but noted that the first quarter data diminished his confidence, making it difficult for the Fed to commit to any rate cuts or timing. Nick Timiraos of the Wall Street Journal highlighted that Powell confirmed the Fed's plan to maintain interest rates at the highest level in over two decades until there's clear evidence of inflation returning to a downward trend. Powell remains watchful on inflation and interest rates.

The U.S. April PPI rose 2.2% year-over-year, the fastest pace in 12 months, and increased by 0.5% month-over-month, exceeding expectations. This data has led to a reduction in market expectations for rate cuts. The higher-than-expected PPI increase has raised concerns that inflation is too persistent for the Fed to ease its policies. Swap contracts now reflect a 40-basis-point rate cut by the end of the year.