Fed’s Powell: Latest data adds somewhat to confidence inflation is returning to 2%
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The remarks from US Federal Reserve chairman Jerome Powell are likely his last until his press conference following the Fed’s July 30-31 meeting.
PHOTO: REUTERS
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WASHINGTON - US Federal Reserve chairman Jerome Powell said on July 15 the three US inflation readings in the second quarter of 2024 do “add somewhat to confidence” that the pace of price increases is returning to the Fed’s target in a sustainable fashion, remarks suggesting a turn to interest rate cuts may not be far off.
“In the second quarter... we did make some more progress” on taming inflation, he said at an event at the Economic Club of Washington. “We’ve had three better readings and if you average them, that’s a pretty good place.”
“What we’ve said is that we didn’t think it would be appropriate to begin to loosen policy until we had greater confidence” that inflation was returning sustainably to 2 per cent, Mr Powell added.
“We’ve been waiting on that. And I would say that we didn’t gain any additional confidence in the first quarter, but the three readings in the second quarter, including the one from last week, do add somewhat to confidence.”
Last week, the Labour Department reported that its consumer price index fell in June from the month before, the first month-to-month decline in four years. Coupled with a reading of wholesale inflation a day later, economists now estimate the gauge the Fed uses for its inflation target, due out later in July, will show yearly price increases have eased closer towards 2 per cent.
Mr Powell’s remarks are likely his last until his press conference following the Fed’s July 30-31 meeting. Fed governors Christopher Waller and Adriana Kugler as well as other top Fed officials will also speak this week, comments that may further frame the central bank’s thinking at a key moment in their deliberations.
Inflation is edging closer to the Fed’s target, and policymakers are increasingly concerned about slowing the economy too much and causing the unemployment rate to rise. Given what policymakers believe to be an increasingly balanced set of risks, the Fed officials may well use their final comments ahead of July’s meeting to either flag that rate cuts are imminent or explain why recent data still does not warrant a turn to easier monetary policy.
The betting among investors has tilted strongly towards the Fed starting rate cuts in September. Changes to the policy statement in July could give a strong signal of that by updating how inflation is described and assessing how recent data has added to policymakers’ confidence that the pandemic-era outbreak of inflation has subsided.
After rapidly lifting interest rates starting in 2022 to combat the worst inflation outbreak since the 1980s, the Fed has left its benchmark policy rate unchanged since July 2023 in a range of 5.25 per cent to 5.5 per cent.
As Mr Powell spoke, financial markets all but abandoned what had been rising bets on a July rate cut. Traders continue to expect a September rate cut followed by additional cuts in November and December, bringing the policy rate down to 4.5 per cent to 4.75 per cent by the year end. REUTERS
