Despite what many hoped would be a year of interest rate cuts, Federal Reserve Chair Jerome Powell said on Tuesday that inflation in the U.S. has yet to hit the bank’s goal, meaning a rate cut is not coming anytime soon.
“More recent data shows solid growth and continued strength in the labor market, but also a lack of further progress so far this year on returning to our 2% inflation goal,” Powell said while speaking at a forum focused on U.S. and Canada economic relations.
While the central bank has been able to fight inflation down from its peak of 9.1% two years ago, it’s continued to struggle to get it under 3%, and there are a few reasons why.
Among the biggest drivers of inflation in March was the current cost of housing, which has continued to rise across the country.
The housing market may be a headache and a current pipe dream for many, but the issue goes beyond those trying to buy a home, as rent has also risen drastically across the nation.
According to the U.S. Bureau of Labor Statistics, over the last 12 months, shelter costs have risen by 5.7%, showing that even though some prices have fallen, others remain high.
Another category driving the current inflation rate is energy, which is up 4.2% over the last 12 months, with electricity (3.1%) and natural gas (5%) among the leading drivers.
Because inflation has remained above the central bank’s goal of below 3%, Powell said this week that current policy will stay in place until it gets closer to the target.
“The recent data have clearly not given us greater confidence, and instead indicate that it’s likely to take longer than expected to achieve that confidence,” he said. “That said, we think policy is well positioned to handle the risks that we face.”
There is also no end in sight, as Powell says that if inflation doesn’t show progress, they will “maintain the current level of restriction for as long as needed.”
Currently, the CPI reading for March showed that inflation is running at a 3.5% annual rate, drifting to numbers last seen in October 2023.