WASHINGTON (AP) — Federal Reserve Chairman Jerome Powell said Monday he is increasingly confident that inflation will return to its 2% target and that the central bank will likely cut interest rates before the pace of price increases actually reaches that level.
“We’ve had better numbers in the last three rounds, averaging a pretty good pace,” Powell said of inflation during a question-and-answer session at the Washington Economic Club. He said the numbers “give us some added confidence” that inflation is sustainably slowing.
Powell declined to suggest when the first rate cut might come, but his comments raised hopes among Wall Street traders that the Fed will cut interest rates, which are at their highest in 23 years, and that most economists expect that to happen in September. Futures markets are poised for further cuts in November and December.
“I’m not going to send any signals today about any specific meetings,” Powell said.
In the long run, the Fed’s interest rate cuts will reduce borrowing costs for consumers, including mortgages, auto loans and credit cards.
Last week, the government announced that the consumer price index rejection Inflation rose slightly from May to June, easing to 3% year-on-year from 3.3% in May. So-called “core” prices, which exclude volatile energy and food prices and are often a better predictor of the direction of inflation, rose 3.3% year-on-year, down from 3.4% in May.
In his speech on Monday, Chairman Powell stressed that the Fed does not need to wait until inflation actually hits 2% in order to lower borrowing costs.
“Waiting for inflation to get down to 2 percent is probably too long of a wait,” Powell said, because it takes time for Fed policy to have an impact on the economy.
Powell also said: Assassination attempt During former President Donald Trump’s speech on Saturday, he called it a “sad day for our country,” adding that violence has no place in American politics.
After rising concerns about high inflation at the start of the year, Fed officials said they needed several months of falling price indices before they were confident inflation was falling sustainably toward their target. June marked the third straight month of slowing year-over-year inflation.
Following the government’s latest inflation report on Thursday, San Francisco Federal Reserve President Mary Daly suggested that a rate cut was on the way. “Some policy adjustments will likely be necessary,” Daly said, but did not offer a specific timeline for when or how many rate cuts might come.
In a conference call with reporters, Daly expressed optimism, saying the June consumer price report showed “the moderate decline in inflation that we have been watching and hoping for, giving us increasing confidence that we are on the path to 2 percent inflation.”
Many of the drivers of price growth are slowing, strengthening the Fed’s confidence that inflation is steadily easing from a 40-year peak expected in 2022 and is firmly contained.
Thursday’s inflation report reflected a long-expected decline in rent and housing costs, which had skyrocketed since the pandemic as many Americans relocated to work from home and seek larger living quarters.
Hiring and job vacancies are also sluggish, reducing many companies’ need to raise wages to recruit more workers. A sharp rise in wages could spur inflation if companies respond by raising prices to make up for higher labor costs.
Powell told a Senate committee last week that while the job market has “cooled quite a bit,” it is “not a source of broad inflationary pressure on the economy.”
