In a speech at the Economic Club of Washington on Monday, Federal Reserve Chair Jay Powell expressed growing confidence in the trajectory of US inflation, signaling potential interest rate cuts.
Powell highlighted recent data from the consumer price index, indicating a favorable decline in price pressures across the nation.
“Our test has been for quite some time that we want to have greater confidence that inflation was moving sustainably down towards our 2 per cent target, and what increases confidence in that is more good inflation data,” said Powell. “And lately, we have been getting some of that.”
He pointed to the last three monthly inflation reports, noting a commendable pace of price growth following an unexpected spike earlier this year.
This spike delayed plans for reducing the Fed’s benchmark policy rate, currently set between 5.25-5.5 per cent.
While markets aren’t anticipating rate cuts at the upcoming meeting, Powell’s remarks reinforce expectations of future adjustments, possibly in September.
Powell refrained from specifying timing, reiterating that decisions will be evaluated meeting by meeting.
Despite recent upticks in the unemployment rate to 4.1 per cent and subdued wage growth, Powell downplayed concerns of a sharp economic downturn.
He emphasized a balanced outlook, stating that the risk of inflation returning while unemployment rises isn’t the most likely scenario.
Looking ahead, Powell discussed the “neutral” rate, suggesting it has risen post-pandemic, indicating future rate adjustments may settle at higher levels to sustain economic growth without overheating.
The Federal Reserve’s cautious optimism reflects ongoing efforts to steer US economic policy amidst evolving global conditions.
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