Federal Reserve officials will likely reduce their benchmark interest rate later this year, Chair Jerome Powell said Wednesday, despite recent reports showing that the U.S. economy is still strong and that U.S. inflation picked up in January and February.
Quick Read
- Rate Cut Possibility: Federal Reserve Chair Jerome Powell indicated that the Fed might lower its benchmark interest rate later this year, despite recent data showing strong economic growth and a slight uptick in inflation in early 2023.
- Economic Outlook: Powell described the current economic situation as one of solid growth and a robust labor market, with inflation expected to gradually approach the Fed’s 2% target, albeit on a potentially uneven path.
- Election Year Decisions: Powell addressed concerns about the timing of potential rate cuts during the presidential election year, emphasizing the Fed’s independence and commitment to making decisions unaffected by short-term political considerations.
- Inflation and Discontent: While inflation has decreased from its peak, it remains above the Fed’s target, contributing to public dissatisfaction and posing challenges for President Biden’s re-election efforts.
- Rate Cut Timing: Some economists have adjusted their forecasts for the Fed’s first rate cut to mid-year or later due to the recent inflation data, leading to speculation about the impact on the presidential election.
- Fed’s Independence: Powell reiterated the Fed’s independence from political influences, as intended by Congress, stressing that monetary policy decisions are made without regard to short-term political factors.
- Economic Reports: Recent reports indicate that the economy is robust, driven by strong consumer spending, but this could complicate the Fed’s efforts to reduce inflation to the desired 2% target.
- Fed Officials’ Forecasts: At their last meeting, Fed officials suggested up to three rate cuts could occur this year, but nearly half anticipated two or fewer reductions.
The Associated Press has the story:
Powell: Fed still sees rate cuts this year; election timing won’t affect decision
Newslooks- WASHINGTON (AP) —
Federal Reserve officials will likely reduce their benchmark interest rate later this year, Chair Jerome Powell said Wednesday, despite recent reports showing that the U.S. economy is still strong and that U.S. inflation picked up in January and February.
“The recent data do not … materially change the overall picture,” Powell said in a speech at Stanford University, “which continues to be one of solid growth, a strong but rebalancing labor market, and inflation moving down toward 2 percent on a sometimes bumpy path.”
Most Fed officials “see it as likely to be appropriate” to start cutting their key rate “at some point this year,” he added.
In his speech, Powell also sought to dispel any notion that the Fed’s interest-rate decisions might be affected by this year’s presidential election. The Fed will meet and decide whether to cut rates during the peak of the presidential campaign, in July and September.
Though inflation has cooled significantly from its peak, it remains above the Fed’s 2% target. And average prices are still well above their pre-pandemic levels — a source of discontent for many Americans and potentially a threat to President Joe Biden’s re-election bid.
The recent pickup in inflation, though slight, has led some economists to postpone their projections for when the Fed will begin cutting rates. Rate cuts would begin to reverse the 11 rate increases the Fed carried out beginning in March 2022, to fight the worst inflation bout in four decades. They would likely lead, over time, to lower borrowing rates for households and businesses.
Many economists now predict that the central bank’s first rate cut won’t come until July or even later. That expectation has fueled some speculation on Wall Street that the Fed might end up deciding to delay rate cuts until after the presidential election. The Fed’s November meeting will take place Nov. 6-7, immediately after Election Day.
Former President Donald Trump has called Powell “political” for considering rate cuts that Trump has said could benefit Biden and other Democrats. Powell was first nominated to be Fed chair by Trump, who has said that, if he is elected president, he will replace Powell when the Fed chair’s term ends in 2026.
In his speech Wednesday, Powell noted that Congress intended the Fed to be fully independent of politics, with officials serving long terms that don’t coincide with elections.
“This independence,” Powell said, “both enables and requires us to make our monetary policy decisions without consideration of short-term political matters.”
The Fed chair’s remarks follow several reports showing that the economy remains healthy, largely because of solid consumer spending. Yet that strength could make it harder for the Fed to achieve its goal of slowing inflation to its 2% target. Annual inflation ticked up in February to 2.5%, according to the central bank’s preferred measure, though that was down sharply from its peak of 7.1%.
When they met two weeks ago, Fed officials forecast that they could cut their benchmark rate three times this year. Still, nearly half the 19 policymakers penciled in just two or fewer rate cuts.
