WASHINGTON (AP) – Chairman Jerome Powell said Monday that the Federal Reserve is becoming more confident that inflation is returning to its 2% target and said the Fed will cut rates before the pace of inflation reaches that point. .
“We’ve had three better readings, and if you average them out, that’s a pretty good pace,” Powell said of inflation in a question-and-answer session at the Economic Club of Washington. These numbers, he said, “give some confidence” that inflation is slowing steadily.
Powell declined to give any indication of when the first rate cut would occur. But most economists expect the first rate cut to occur in September, and after Powell’s comments, Wall Street traders raised their expectation that the Fed would cut its key rate next from its record high of 23 years. Futures markets expect additional rate cuts in November and December.
“Today,” said Powell, “I will send no signal for any particular meeting.”
Rate cuts by the Fed would, over time, reduce consumer borrowing costs for things like mortgages, car loans and credit cards.
Last week, the government reported that consumer prices refused slightly from May to June, reducing inflation to 3%, from 3.3% in May. So-called “core” prices, which exclude volatile energy and food costs and often provide a better read on where inflation may be headed, rose 3.3% from a year earlier, down from 3.4% in May.
In his comments on Monday, Powell stressed that the Fed did not need to wait until inflation reached 2% to lower borrowing costs.
“If you wait until inflation gets down to 2%, you’ve probably waited too long,” Powell said, because it takes time for Fed policies to affect the economy.
Powell also commented on assassination attempt of former President Donald Trump on Saturday, saying it was a “sad day for our country” and adding that violence had no place in American politics.
After some high inflation readings earlier in the year had raised some concerns, Fed officials said they would need to see several months of falling price readings to be confident enough that inflation was fading steadily toward the level of intended. June was the third consecutive month in which inflation cooled on an annual basis.
After the government’s latest encouraging inflation report on Thursday, Mary Daly, president of the Fed’s San Francisco branch, signaled that rate cuts were on the way. Daly said “it is likely that some policy adjustments will be warranted,” although she did not suggest any specific timing or number of rate cuts.
On a call with reporters, Daly struck an upbeat tone, saying the June consumer price report showed that “we’ve had the kind of gradual reduction in inflation that we’ve seen and been looking for, which … is actually building confidence.” that we are on the way to 2% inflation.
Many drivers of price acceleration are slowing, bolstering the Fed’s belief that inflation is fully easing after easing steadily from a four-decade peak in 2022.
Thursday’s inflation report reflected a long-awaited decline in rents and housing costs. Those costs had increased in the wake of the pandemic as many Americans moved in search of more spacious living space to work from home.
Hiring and job openings are also cooling, reducing the need for many businesses to raise wages to fill jobs. Much higher wages can fuel inflation if companies respond by raising prices to cover their higher labor costs.
Last week before a Senate committee, Powell noted that the labor market had “cooled significantly” and was not “a source of broad inflationary pressures on the economy.”