Finance
Fed Chair Powell says there has been a ‘lack of further progress’ this year on inflation
Federal Reserve Chair Jerome Powell speaks during a press conference following a closed two-day meeting of the Federal Open Market Committee on interest rate policy at the Federal Reserve in Washington, D.C., on Dec. 13, 2023.
Kevin Lamarque | Reuters
Federal Reserve Chair Jerome Powell said the U.S. economy, while otherwise strong, has not seen inflation come back to the central bank’s goal, pointing to the further unlikelihood that interest rate cuts are in the offing anytime soon.
Speaking to a policy forum focused on U.S.-Canada economic relations, Powell said that while inflation continues to make its way lower, it hasn’t moved quickly enough and the current state of policy should remain intact.
“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,” the Fed chief said during a panel talk.
Echoing recent statements by central bank officials, Powell indicated that the current level of policy likely will stay in place until inflation gets closer to target.
Since July 2023, the Fed has kept its benchmark interest rate in a target range between 5.25%-5.5%, the highest in 23 years. That was the result of 11 consecutive rate hikes that began in March 2022.
“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.”
Powell added that until inflation shows more progress, “We can maintain the current level of restriction for as long as needed.”
The comments follow inflation data through the first three months of 2023 that has been higher than expected. A consumer price index reading for March, released last week, showed inflation running at a 3.5% annual rate — well off the peak around 9% in mid-2022 but drifting higher since October 2023.
Treasury yields rose as Powell spoke. The benchmark two-year note, which is especially sensitive to Fed rate moves, briefly topped 5%, while the benchmark 10-year yield rose half a percentage point. The S&P 500 fell after being positive earlier in the session, though the Dow Jones Industrial Average held positive.
10-year and 2-year yields
Powell noted that the Fed’s preferred inflation gauge, the personal consumption expenditures price index, in February showed core inflation at 2.8% in February and has been little changed over the past few months.
“We’ve said at the [Federal Open Market Committee] that we’ll need greater confidence that inflation is moving sustainably towards 2% before [it will be] appropriate to ease policy,” he said. “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.”
Financial markets have had to reset their expectations for rate cuts this year. At the start of 2024, traders in the fed funds futures market were pricing in six or seven cuts this year, starting in March. As the data has progressed, the expectations have shifted to one or two cuts, assuming quarter percentage point moves, and not starting until September.
In their most recent update, FOMC officials in March indicated that they see three cuts this year. However, several policymakers in recent days have stressed the data-dependent nature of policy and have not committed to set level of reductions.
Klarna is synonymous with the “buy now, pay later” trend of making a purchase and deferring payment until the end of the month or paying over interest-free monthly installments.
Nikolas Kokovlis | Nurphoto | Getty Images
Swedish fintech Klarna — primarily known for its popular “buy now, pay later” services — is launching its own Visa debit card, as it looks to diversify its business beyond short-term credit products.
The company on Tuesday announced that it’s piloting the product, dubbed Klarna Card, with some customers in the U.S. ahead of a planned countrywide rollout. Klarna Card will launch in Europe later this year, the firm added.
The move highlights an ongoing effort from Klarna ahead of a highly anticipated initial public offering to shift its image away from the poster child of the buy now, pay later (BNPL) trend and be viewed as more of an all-encompassing banking player. BNPL products are interest-free loans that allow people to pay off the full price of an item over a series of monthly installments.
“We want Americans to start to associate us with not only buy now, pay later, but [with] the PayPal wallet type of experience that we have, and also the neobank offering that we offer,” Klarna CEO Sebastian Siemiatkowski told CNBC’s “The Exchange” last month. “We are basically a neobank to a large degree, but people associate us still strongly with buy now, pay later.”
Klarna’s newly announced card comes with an account that can hold Federal Insurance Deposit Corporation (FDIC)-insured deposits and facilitate withdrawals — similar to checking accounts offered by mainstream banks.
Notably, Klarna Card is powered by Visa Flexible Credential, a service from the American card network that lets users access multiple funding sources — like debit, credit and BNPL — from a single payment card. It’s a debit card by default, but users can also toggle to one of Klarna’s “pay later” products, including “Pay in 4” and “Pay in 30 Days.”
Klarna is pushing deeper into a fiercely competitive consumer banking market. The U.S. banking industry is dominated by heavyweights such as JPMorgan Chase & Co and Bank of America, while fintech challengers like Chime have also attracted millions of customers.
While Klarna has a full banking license in the European Union, it does not have its own U.S. bank license. However, the firm says it’s able to offer FDIC-insured accounts through a partnership with WebBank, a small financial institution based in Salt Lake City, Utah.
WATCH: CNBC’s full interview with Klarna CEO Sebastian Siemiatkowski
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