Federal Reserve Chairman Jerome Powell has signaled that while US inflation is showing signs of cooling, the central bank needs more evidence before considering interest rate cuts. Speaking at the European Central Bank’s forum in Sintra, Portugal, Powell emphasized the importance of ensuring that recent inflation readings accurately reflect underlying price pressures.”We’ve made quite a bit of progress in bringing inflation back down to our target,” Powell stated. However, he cautioned that the Fed wants to see annual price growth slow further towards their 2% target before making any decisions on rate cuts. The Fed has kept its benchmark interest rate steady in the range of 5.25% to 5.5% since July 2023.Powell highlighted the strength of the US economy and job market, which allows the Fed to take a patient approach. “As the US economy is strong, we have the possibility of taking our time,” he remarked. This cautious stance reflects the delicate balance the Fed must strike between cutting rates too soon, potentially reigniting inflation, and waiting too long, which could unnecessarily burden the economy.The Fed Chair also noted that the job market is “cooling off appropriately,” which should not lead to heightened inflationary pressures. However, he acknowledged that further progress in reducing inflation might come with a rise in unemployment, a trade-off the Fed has so far managed to avoid.While some market participants and economists have been anticipating potential rate cuts, Powell’s comments suggest that such moves are not imminent. The Fed’s next steps will likely depend on upcoming economic data, particularly employment and inflation reports. Powell indicated that inflation might return to the 2% target “by the end of next year or the following one”, underscoring the Fed’s commitment to a data-driven approach in its monetary policy decisions.
Key points
- Fed Chair Powell states more evidence is needed before considering interest rate cuts, despite signs of cooling inflation.
- The Fed has maintained its benchmark interest rate steady at 5.
- Powell emphasizes the strong US economy and job market, allowing for a patient approach to monetary policy decisions.
- The Fed aims to ensure inflation sustainably moves towards its 2% target before easing monetary policy.
25%-5.
5% since July 2023.
Contradictions👾While Powell indicates that more data is needed before cutting rates, some economists and market participants have been anticipating potential rate cuts in the near future.
