US Fed's Powell expects inflation to fall, though not as confident as before

By Bart H. Meijer and Toby Sterling

AMSTERDAM (Reuters) -Federal Reserve Chair Jerome Powell on Tuesday gave a bullish assessment of where the U.S. economy stands now, with an outlook for continued above-trend growth and confidence in falling inflation that, while eroded by recent data, remains largely intact.

"I expect that inflation will move back down ... on a monthly basis to levels that were more like the lower readings that we were having last year," Powell said at a banking event in Amsterdam.

Though he said "my confidence in that is not as high as it was," given faster than expected inflation through the first three months of the year, the U.S. central bank chief said it remained unlikely in his view that the Fed would have to raise rates any further, even if the prospect for rate cuts has become less certain.

"I don't think that it is likely based on the data we have that the next move that we make will be a rate hike," Powell said. "It is more likely ... we hold the policy rate where it is."

His comments largely restated those made at his press conference after the Fed's last meeting. Expectations about the Fed's rate decisions remained largely unchanged even as new data showed producer prices rose faster than expected in April, an outcome Powell said was "mixed" because prior data was revised lower.

A more significant data release comes Wednesday when information on consumer prices in April is published.

For now, however, investors continue to anticipate an initial rate cut in September. The Fed's benchmark policy rate has been held steady in a 5.25% to 5.5% range since July, and officials have largely dropped specific guidance on whether that might be reduced this year.

Part of the uncertainty relates to the strength of the U.S. economy, which has continued a run of stronger-than-expected growth despite the Fed's record monetary tightening.

Powell said his outlook was for continued growth and ongoing job creation bolstered by immigration.

He said he expected the economy to grow about 2% this year, slightly above the Fed's estimates of the economy's underlying potential, with a labor market that remains "very, very strong."

"If you look at a broad range of data ... the labor market is about as tight as it was before the pandemic in 2019. And that's good," said Powell, with an unemployment rate below 4% for more than two years.

The low joblessness and rising wages seen in 2019 has been cited by Powell before as a touchstone for the Fed.

The prospect of a renewed decline in inflation without a marked economic slowing has all been given a boost, Powell said, by the arrival of immigrants who helped fill a surplus of open jobs and have added to the U.S. economy as consumers.

"We're still getting very substantial numbers of people coming into the country and going to work," Powell said. "Immigration is also not a policy that the Fed works on or has opinions on, but I'm just giving you the straight economics of it. People come in ... They are getting work permits and they go to work and they're paying taxes and they're creating economic output and there are millions of them."

(Reporting by Toby Sterling and Bart H. Meijer; Writing by Howard Schneider; Editing by Will Dunham, Andrea Ricci and Chris Reese)