Jerome H. Powell, the chair of the Federal Reserve, indicated on Tuesday that recent inflation data had given the central bank more confidence that price increases were returning to normal, and that continued progress along these lines would help to pave the way toward a central bank rate cut.
Criteria for Rate Reduction
“The Committee has stated that we do not expect it will be appropriate to reduce the target range for the federal funds rate until we have gained greater confidence that inflation is moving sustainably toward 2 percent,” Mr. Powell said.
He added that data earlier this year failed to provide such confidence, but that recent inflation readings “have shown some modest further progress, and more good data would strengthen our confidence that inflation is moving sustainably toward 2 percent.”
Timing for Rate Cut Decision
While Mr. Powell avoided zeroing in on a specific month for when the Fed might begin to cut interest rates, he also did little to push back on growing expectations that a reduction could come in September. Fed officials meet in late July, but few, if any, economists expect a move that early.
Fed’s Delicate Balancing Act
The chair’s congressional testimony comes at a delicate moment for the central bank. Fed officials are trying to figure out when to begin cutting interest rates, which they have held at the highest rate in decades for roughly a year now. But as they weigh that choice, they must strike a careful balance: They want to keep borrowing costs high long enough to cool the economy and fully stamp out rapid inflation, but they also want to avoid overdoing it, which could crash the economy too much and cause a recession.
