Fed Chair Jerome Powell said earlier this week 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, according to the Associated Press. Those figures, he said, “do add somewhat to confidence” that inflation is slowing sustainably.
Powell didn’t give any hints when the first rate cut would occur. But most economists foresee the first cut occurring in September, and after Powell’s remarks Wall Street traders boosted their expectation that the Fed would reduce its key rate then from its 23-year high, the AP reported. 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.
Powell pointed out in his remarks that that the Fed doesn’t have to wait until inflation actually reached 2% to cut borrowing costs.
“If you wait until inflation gets all the way down to 2%, you’ve probably waited too long,” Powell said, because it takes time for the Fed’s policies to affect the economy.
