As the slowdown of inflation in the United States continues to attract attention, the issue of interest rate cuts is becoming increasingly prominent. Federal Reserve Chairman Jerome Powell stated on Monday, July 15, that the Fed will not wait until the inflation rate drops to 2% before cutting interest rates. He emphasized that the inflation reading for the second quarter “indeed to some extent” increased policymakers’ confidence that the inflation rate is declining in a sustainable manner towards the 2% target.
Powell engaged in a conversation with David Rubenstein, the Chairman of the Economic Club of Washington D.C., on Monday.
“In fact, in the second quarter, we did make more progress in suppressing inflation. We have three better (inflation) readings, which, if averaged, are quite good,” he said.
He reiterated that the labor market is currently in a better balanced state, and if the labor market unexpectedly weakens, it will also be a reason to adjust interest rates.
Powell refused to predict a timeline for interest rate cuts. However, he explained why the Fed will not wait until inflation drops to 2% before starting to cut rates. He stressed that the impact of monetary policy has a lag. If the Fed keeps waiting for inflation to drop to 2%, they may have waited too long because the tightening policies currently in place may still be exerting an influence that could lower inflation below 2%.
He also stated that better inflation data would give policymakers more confidence that inflation will return to the 2% level, “we have recently received some data like this.”
According to the minutes of the Federal Reserve’s interest rate meeting held on June 11 and 12, participants believe that more favorable data is needed to make them more confident that the inflation rate is sustainably moving towards 2%. Lowering rates before seeing such data is deemed inappropriate.
Powell reiterated these views on Monday.
“We have been waiting for this moment to come. What I want to say is, in the first quarter, we did not gain any additional confidence, but the three readings in the second quarter, including last week’s reading, did increase confidence to some extent,” he said.
The Fed’s next interest rate meeting is scheduled for July 30-31. It is expected that this meeting will announce the maintenance of the benchmark interest rate. The Fed may begin cutting rates in September, with the possibility of two or more rate cuts this year.
Powell also stated on Monday that he does not believe a hard landing is likely for the U.S. economy.
Citing Thomas Simons, an economist at Jefferies, Reuters reported, “More or less as expected. I think his (Powell’s) position is gradually shifting towards the possibility of rate cuts.”