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The head of the US central bank said last night that reducing inflation is ‘not done yet’, amid growing speculation about the interest rate outlook on both sides of the Atlantic.
Federal Reserve Chairman Jerome Powell said inflation has fallen significantly but remains above the 2 percent target, as in Britain and Europe.
He said if the economy evolves “broadly as we expect,” interest rate cuts would likely happen sometime this year. But he added: “The work of sustainably restoring 2 percent inflation is not yet done.
“We do not expect it will be appropriate to cut our policy rate until we have more confidence that inflation is moving sustainably towards 2 percent.”
The Fed, the Bank of England and the European Central Bank are all expected to cut rates this year – but by how much and when is unclear.
Work to be done: Fed Chairman Jerome Powell (pictured) said inflation has fallen significantly but still remains above the 2% target
All three central banks could make their move in June, although concerns about a cut later will spook markets.
Gold prices hit a new record high of $2,295 (£1,814) an ounce yesterday amid fears that high inflation will force the Fed to delay. At the same time, US government bond yields rose to their highest level of the year.
This happened at a time when inflation in the eurozone fell by more than expected to 2.4 percent, reinforcing expectations that the ECB will cut interest rates this summer.
According to financial market betting, there is a 25 percent chance of a UK interest rate cut in May, an almost 60 percent chance in June and a more than 80 percent chance in August.