Chair Jerome Powell said Monday that the Federal Reserve is becoming more convinced that inflation is headed back to its 2% target and said the Fed would cut rates before the pace of price increases actually reached that point. “We’ve had three better readings, and if you average them, that’s a pretty good pace,” Powell said of inflation in a question-and-answer question at the Economic Club of Washington. Those figures, he said, “do add to confidence” that inflation is slowing sustainably.
Quick Read
- Fed’s Confidence in Inflation Decline: Federal Reserve Chair Jerome Powell said the Fed is increasingly confident that inflation is moving toward its 2% target and may cut rates before reaching that point.
- Improved Inflation Readings: Powell noted that three recent inflation reports have shown improvement, which adds to the Fed’s confidence in sustainable inflation reduction.
- No Specific Timeline for Rate Cuts: Powell did not specify when rate cuts might begin, though most economists and investors expect the first cut in September, with additional cuts in November and December.
- Potential Impact on Borrowing Costs: Rate reductions by the Fed would lower borrowing costs for consumers on mortgages, auto loans, and credit cards over time.
- Recent Inflation Report: Last week’s government report showed consumer prices declined slightly from May to June, with year-over-year inflation at 3%, down from 3.3% in May. Core prices, excluding energy and food, climbed 3.3%, down from 3.4% in May.
- Fed Officials’ Positive Outlook: Following the latest inflation report, San Francisco Fed President Mary Daly indicated that rate cuts were nearing, reflecting growing confidence in a gradual reduction of inflation.
- Factors Supporting Inflation Reduction: Slowing price acceleration drivers and cooling job markets are solidifying the Fed’s confidence that inflation is being fully tamed.
- Powell’s Senate Committee Remarks: Powell recently told a Senate committee that the job market had “cooled considerably” and was not a broad source of inflationary pressure.
The Associated Press has the story:
Powell: Federal Reserve is more confident inflation is slowing to its target
Newslooks- WASHINGTON (AP) —
Chair Jerome Powell said Monday that the Federal Reserve is becoming more convinced that inflation is headed back to its 2% target and said the Fed would cut rates before the pace of price increases actually reached that point.
“We’ve had three better readings, and if you average them, that’s a pretty good pace,” Powell said of inflation in a question-and-answer question at the Economic Club of Washington. Those figures, he said, “do add to confidence” that inflation is slowing sustainably.
Powell declined to provide any hints of when the first rate cut would occur. But most economists and investors expect the central bank to begin cutting its key rate in September from its 23-year high, though a few now envision a rate cut as early as the Fed’s next meeting later this month. The futures markets expect additional rate cuts in November and December. “Today,” Powell said, “I’m not going to send any signals on any particular meeting.” Rate reductions by the Fed would, over time, reduce consumers’ borrowing costs for things like mortgages, auto loans, and credit cards.
Last week, the government reported that consumer prices declined slightly from May to June, bringing inflation down to a year-over-year rate of 3%, from 3.3% in May. So-called “core” prices, which exclude volatile energy and food costs and often provide a better read of where inflation is likely headed, climbed 3.3% from a year earlier, below 3.4% in May.
After several high inflation readings at the start of the year had raised some concerns, Fed officials said they would need to see several months of declining price readings to be confident enough that inflation was fading sustainably toward its target level. June was the third straight month in which inflation cooled on an annual basis.
After the government’s latest encouraging inflation report Thursday, Mary Daly, president of the Fed’s San Francisco branch, signaled that rate cuts were getting closer. Daly said it was “likely that some policy adjustments will be warranted,” though she didn’t suggest any specific timing or number of rate reductions.
But in a call with reporters, Daly struck an upbeat tone, saying that June’s consumer price report showed that “we’ve got that kind of gradual reduction in inflation that we’ve been watching for and looking for, which … is actually increasing confidence that we are on path to 2% inflation.” Many drivers of price acceleration are slowing, solidifying the Fed’s confidence that inflation is being fully tamed after having steadily eased from a four-decade peak in 2022.
Thursday’s inflation report reflected a long-anticipated decline in rental and housing costs. Those costs had jumped in the aftermath of the pandemic as many Americans moved in search of more spacious living space to work from home.
Hiring and job openings are also cooling, thereby reducing the need for many businesses to ramp up pay in order to fill jobs. Sharply higher wages can drive up inflation if companies respond by raising prices to cover their higher labor costs. Last week before a Senate committee, Powell noted that the job market had “cooled considerably,” and was not “a source of broad inflationary pressures for the economy.”
