Gabriela Santos, chief market strategist at JPMorgan Asset Management, analyzes the Fed’s decision-making on “Clamant Countdown.”
Chairman of the Federal Reserve System Jerome Powell The Fed chairman said Monday that policymakers are not going to wait until inflation falls to 2% before cutting interest rates.
“What that means is that waiting until inflation gets down to 2 percent is probably waiting too long, because the tightening, or the level of monetary tightening that we’re currently undertaking, is probably still having the effect of pushing inflation below 2 percent,” Powell told the Economic Club of Washington, D.C.
The Fed chairman reiterated that policymakers want more evidence that high inflation has been overcome before turning to lower interest rates.
“We want to have greater confidence that inflation is declining sustainably toward our 2 percent objective,” he said. “What increases that confidence is better inflation data, and we’ve had that data recently.”
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The Marriner S. Eccles Federal Reserve Building is photographed on September 19, 2022 in Washington, DC. (Photo by Kevin Dietsch/Getty Images/Getty Images)
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.
Since then, there is some evidence that inflation has started to ease again. Personal Consumption Expenditures Index for May The data showed inflation slowing to 2.6% from a peak of 7.1%. At the same time, core prices, which the Fed watches more closely because they exclude more volatile measures such as food and energy, rose 2.6%, the slowest annual increase since March 2021.
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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.
Federal Reserve Chairman Jerome Powell attends a press conference in Washington, DC on May 1, 2024. (Photo by Liu Jie/Xinhua via Getty Images)
Powell did little on Monday to dispute those projections, and also said he thought a “hard landing” scenario was unlikely.
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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.
