Federal Reserve Chair Jerome Powell expressed satisfaction Tuesday with the progress on inflation over the past year but said he wants to see more before being confident enough to start cutting interest rates. Powell mentioned that they have made quite a bit of progress in bringing inflation back down to their target of 2%. The recent readings suggest that they are on the path towards sustainable disinflation, but Powell emphasized the need for more confidence before considering policy adjustments.
Powell’s remarks were made at a central banking forum in Sintra, Portugal, which also included European Central Bank President Christine Lagarde and Brazil central bank Governor Roberto Campos Neto. The forum, presented by the ECB and moderated by CNBC’s Sara Eisen, highlighted the issues surrounding inflation and possible policy responses by central banks around the world.
Market participants are closely watching the Fed and other central banks as inflation pressures ease and some economies experience slowdowns. The Commerce Department’s personal consumption expenditures price index, a key inflation measure for the Fed, has been easing and is currently below the 2% target. While Powell acknowledged progress, he remains cautious about potential premature policy adjustments that could disrupt the downward trajectory of inflation.
Powell emphasized the need for a balanced approach to policy decisions, highlighting the risks of acting too soon or too late. He mentioned the importance of maintaining the current economic expansion while ensuring that inflation stays within a manageable range. The Fed’s concerns about inflation picking up too quickly have been replaced with worries about moving too early and jeopardizing the recovery.
Market expectations have shifted regarding the Fed’s future actions, with initial projections of multiple rate cuts giving way to more tempered forecasts. While markets anticipate at least one rate cut before the end of the year, Powell refrained from committing to any specific timeline. He emphasized the importance of monitoring economic data and making informed decisions based on the evolving conditions.
When asked about the potential impact of the political climate on Fed decision-making, particularly in light of President Trump’s criticism, Powell remained focused on the central bank’s mandate. He stressed the importance of maintaining independence and focusing on fulfilling the Fed’s dual mandate of stable prices and maximum employment. Powell reiterated that political considerations do not influence the Fed’s policy decisions.
Powell’s remarks at the central banking forum underscored the Fed’s cautious approach to potential rate cuts in response to evolving inflation dynamics. While progress has been made in bringing inflation closer to the 2% target, Powell highlighted the need for further confidence before making significant policy adjustments. The Fed will continue to monitor economic data closely and act accordingly to support sustainable economic growth and price stability.
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