Investors are closely watching comments from central bank governors for clues about future interest rate movements.
Chairman of the Federal Reserve System Jerome Powell The Federal Reserve chairman said Tuesday that policymakers have made “substantial” progress in fighting inflation but need to see more evidence before they start cutting interest rates.
Speaking at a central bank forum in Sintra, Portugal, Chairman Powell said the April and May inflation reports showed price pressures were fading from the economy and reiterated that the Fed wants that progress to continue.
“I think the last indications, and to a lesser extent the previous indications, suggest that we are getting back on a disinflationary trajectory,” he said. “I want to be sure that inflation has fallen sustainably to 2 percent before we begin to ease policy.”
The authorities voted At its last meeting in May, the Fed decided to keep interest rates on hold at a range of 5.25 percent to 5.5 percent, the highest level since 2001. In a statement after the meeting, policymakers left the door open to a rate cut this year but stressed they needed “further confidence” that inflation was falling before easing policy.
Fed keeps interest rates at 23-year high, expected to cut only once this year
Federal Reserve Chairman Jerome Powell answers questions during a podium discussion at the Economic Club of Washington meeting at the Renaissance Hotel in Washington, DC. (REUTERS/Amanda Andrade Rose/File Photo/Reuters Photo)
Since then, there is some evidence that inflation is starting to ease again. The producer consumption index showed that inflation eased slightly to 2.6% in May from a high of 7.1%. At the same time, core prices, which the Fed watches more closely because they exclude more volatile measures like food and energy, rose 2.6%, the smallest annual increase since March 2021.
“This is really great progress,” Powell said. “We’ve made great progress. We just want to understand that the levels that we’re seeing are an accurate representation of what underlying inflation is.”
Both figures are above the Fed’s 2% target.
Policymakers will raise interest rates sharply in 2022 and 2023 to their highest levels since the 1980s, Slow down the economy And inflation is treading water. Now officials are grappling with when to ease off the brakes.
Federal Reserve Chairman Jerome Powell attends a press conference in Washington, DC on May 1, 2024. (Photo by Liu Jie/Xinhua via Getty Images)
Most investors now expect the Fed to start cutting rates in September or November, with just two cuts this year — a dramatic change from earlier this year, when they expected as many as six rate cuts to begin as early as March.
Click here to get FOX Business on the go
When interest rates rise, they tend to push up interest rates on consumer and business loans, forcing employers to cut spending and slowing the economy. Rising rates have pushed the average interest rate on a 30-year mortgage above 8% for the first time in decades. The cost of all kinds of borrowing, including home equity loans, auto loans and credit cards, has also skyrocketed.
This is a developing story, please check back for updates.
