Federal Reserve Chairman Jerome Powell said Monday that recent data boosted the central bank’s confidence that inflation is easing toward its 2 percent target — a trend that signals a rate cut is on the horizon.
“We didn’t gain any additional confidence in the first quarter, but the three readings in the second quarter, including this past week, add some confidence,” Powell said in an interview with David Rubenstein of the Economic Club of Washington. DC.
While the central bank has focused heavily on inflation – which has soared in the wake of the pandemic – it is now also keeping a close eye on its mandate to promote maximum employment, Powell added.
“If we were to see an unexpected weakening in the labor market, then that might also be a reason for us to react,” he said.
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To reduce demand and reduce inflation, the Fed in 2022 quickly raised the key lending rate. It has since kept interest rates at a decade high in the face of sticky price hikes.
However, last week the main inflation gauge, the consumer price index, fell more than expected, in a positive development for policymakers.
Similar trends, along with unemployment rising to its highest level since 2021, could prompt the Fed to cut interest rates sooner rather than later.
“I’ve always felt there was a way to get inflation back to our 2% target on a sustainable basis, without the pain in the labor market, the kind of high unemployment that characterizes tightening cycles and deflation. Powell said.
In part, this was because the labor market was “so overheated that it could cool down quite a bit.”
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He added that a “hard landing” of the economy, characterized by a sharp recession, would be an unlikely scenario.
The Fed is due to hold its next policy meeting at the end of July, and analysts widely expect it could start cutting interest rates at its meeting in September this year.
Asked about cutting interest rates during a presidential campaign, Powell said: “We don’t take political considerations into account. We don’t put a political filter on our decisions.”
Source: AFP