Recent data adds to Fed confidence on cooling inflation: Powell

Federal Reserve Chair Jerome Powell said Monday that recent data lifts the central bank's confidence that inflation is coming down towards its two percent target -- a trend that signals interest rate cuts on the horizon.

"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," Powell said in an interview with David Rubenstein of the Economic Club of Washington DC.

While the central bank has focused largely on inflation -- which surged in the wake of the pandemic -- it is now also closely monitoring its mandate of promoting maximum employment, Powell added.

"If we were to see an unexpected weakening in the labor market, then that might also be a reason for reaction by us," he said.

Read also

Stocks mixed, dollar rises as traders weigh Trump shooting

To ease demand and cool inflation, the Fed in 2022 rapidly lifted the benchmark lending rate. It has since held rates at a decades-high level in the face of sticky price increases.

But last week, key inflation gauge the consumer price index ticked down more than expected, in a positive development for policymakers.

Similar trends, along with an uptick in unemployment to the highest level since 2021, could nudge the Fed to reduce rates sooner rather than later.

"I have always felt like there was a pathway to getting inflation back down to our two percent goal on a sustainable basis without the kind of pain in the labor market, kind of high unemployment that has been typical of tightening cycles and getting inflation down," Powell said.

In part, this was because the labor market was "so overheated that it could cool down quite a bit."

Read also

Stocks up on US rate hopes, yen holds gains amid intervention talk

He added that a "hard landing" of the economy, marked by a sharp downturn, would be an unlikely scenario.

The Fed is due to hold its next policy meeting at end-July, and analysts widely expect it could begin cutting interest rates in its September meeting this year.

Responding to the issue of lowering rates during a presidential campaign period, Powell stressed: "We don't take political considerations into account. We don't put up a political filter on our decisions."

Source: AFP