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‘We are returning to a disinflationary path’
Federal Reserve Chairman Jerome Powell said Tuesday he is encouraged by lower inflation but stressed that the central bank will need to see more evidence before cutting interest rates.
The last two inflation readings in April and May “suggest that we are returning to a disinflationary path,” Powell said while addressing a panel in Portugal for a European Central Bank conference.
Federal Reserve Board Chairman Jerome Powell. (AP Photo/Susan Walsh, File) (ASSOCIATED PRESS)
Powell’s comments came days after the latest reading of the Fed’s preferred inflation gauge – the “core” Personal Consumption Expenditures (PCE) index – rose 2.6% in May, in line with expectations and down from 2.8% in April.
That marked the slowest annual gain in more than three years.
In the monthly comparison, the inflation measure rose 0.1%, also in line with expectations and below the 0.2% in April.
The reading offered fresh support for rate cuts later this year, easing concerns that had emerged during the first quarter that higher-than-expected inflation could derail plans for monetary policy easing in 2024.
Despite another positive sign that inflation is easing, the central bank is unlikely to cut rates at its next meeting in late July.
Read more: What the Fed Rate Decision Means for Bank Accounts, CDs, Loans, and Credit Cards
Powell declined to answer a question about whether the Fed could cut rates as early as September.
Instead, he stressed that the Fed will need more time and evidence that inflation is falling sustainably to its 2% target, noting that the central bank can afford to be patient given the strong labor market that is gradually cooling.
“We’ve made a lot of progress,” Powell said. “We just want to understand that the levels we’re seeing are a true reading of what’s actually happening with underlying inflation.”
The Fed raised its inflation outlook at its latest policy meeting earlier this month to 2.8% from 2.6% and reduced its projection for one rate cut this year from three.
Powell also declined on Tuesday to discuss what Republican presidential candidate Donald Trump’s policies might mean for monetary policy.
He stressed that the Fed would continue to try to stay out of politics. However, he noted that there is “very broad support” for an independent central bank from both political parties.
“I don’t think that’s really the issue.”
Powell, when asked about the biggest risk facing the U.S. economy, said he worries about a cyberattack on a major bank or major market participant.
But he said he also thinks a lot about getting monetary policy right.
The story continues
“That’s what I really think about in the early hours of the morning.”
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