Written by Howard Schneider
WASHINGTON (Reuters) – Federal Reserve Chairman Jerome Powell said on Thursday that the U.S. central bank is “not far off” from gaining the confidence that inflation is falling enough to start cutting interest rates.
“I think we’re in the right position,” Powell said at a Senate Banking Committee hearing regarding the current stance of monetary policy. “We are waiting for further confidence that inflation is sustainably falling to 2%. Once we have that confidence and we are not far from it, we will begin to reduce the level of restrictions. That would be appropriate. Don’t push the economy into recession.”
The comments signaled Powell’s confidence that recent higher-than-expected inflation and other solid economic data will not prevent a continued decline in price pressures that took root last year.
The Fed chair has been reluctant to declare the inflation fight over, and his testimony before the Senate Committee, as well as Wednesday’s testimony before the House Financial Services Committee, does not guarantee further progress toward the Fed’s 2% target. I warned you that it wasn’t.
The latest data showed that headline inflation, as measured by the Federal Reserve’s recommended personal consumption expenditure price index, was 2.4%, while the related underlying inflation rate was slightly higher at 2.8%.
But Powell said both “have been in sharp decline since the middle of last year.” “We still have a ways to go, but we’ve made significant progress.”
The yield on the two-year Treasury note fell slightly after Powell’s comments, as investors bet on the Fed’s first rate cut coming in June.
The central bank will next meet on March 19-20 to issue a new policy statement, as well as updated interest rate and economic forecasts that will shed more light on what policymakers expect this year.
Mr. Powell’s appearance before a Senate and House committee on Wednesday focused on the ongoing debate over the Fed’s regulatory proposals rather than monetary policy, as is typical of the twice-a-year hearings. became. He also addressed other issues, including housing policy and whether the Fed will issue a central bank digital currency.
However, Powell’s latest update on monetary policy signals a sense that the central bank is nearing the point where the current policy rate, which has been held in the 5.25% to 5.5% range since July, at a more than 20-year high, will be cut. was maintained. In the coming months.
At the beginning of the hearing, Ohio Democratic Party Chairman Sherrod Brown asked why the Fed didn’t lower interest rates sooner “to prevent workers from losing their jobs,” and Powell said that was his biggest concern. He said that. There’s also a nod to economic resilience.
“Obviously we’re very aware of the risks and we’re very conscious of avoiding them,” Powell said. “If we continue to expect and see what we are seeing, which is strong growth, a strong labor market, and continued decline in inflation, then that will happen and the economy will continue on that trajectory. If that continues to develop, then we believe that a restrictive stance in policy could and will begin this year.”
(Reporting by Howard Schneider; Editing by Andrea Ricci)
