Federal Reserve Chairman Jerome Powell said Tuesday he doesn’t expect inflation to return to his 2% target before the end of next year at the earliest and is not committed to cutting interest rates this year.
Speaking at an economic policy conference in Portugal, Powell said policymakers needed more evidence that inflation was under control before the Fed began cutting interest rates, which are at their highest in 23 years.
“We just want to understand that the levels that we’ve seen accurately represent the real picture of underlying inflation,” Powell said at a conference hosted by the European Central Bank.
“We want to be more confident. And frankly, the U.S. economy is doing well, so we have the space to respond over time.”
Data for May showed the Fed’s preferred inflation gauge did not rise at all during the month, but the 12-month rate of price growth fell to 2.6%, still above the central bank’s 2% target but trending downward.
Powell said the latest figures “suggest that we are returning to a disinflationary trajectory” but added that the central bank needs “more data, as we have seen recently,” before cutting rates.
“We have made substantial progress in bringing inflation down to our objective,” the Fed chairman said.
The Dow Jones Industrial Average was flat following Powell’s comments during a holiday-shortened week.
The Federal Reserve has kept its benchmark interest rate unchanged at 5.25% to 5.5% since July last year.
Wall Street investors had initially expected up to three rate cuts starting this summer, but persistently high inflation forced the Fed to shelve those plans.
Currently, the most optimistic forecasts call for one rate cut this fall.
Powell declined to say whether a September rate cut was on the table.
“We are well aware that if we withdraw too soon, we could undo some of the good work we’ve done,” Powell said.
“If we go too late, we could unnecessarily undermine the recovery and expansion.”
The Fed will be focusing on employment and inflation data, including the monthly employment report for June, due on Friday.
The latest CPI data for June is due to be released on July 11th.
“The economy is gradually cooling, the labor market is gradually cooling, inflation is improving, the unemployment rate is 4 percent, growth is 2 percent,” Powell said.
“We’re getting what we wanted.”
With post wire
